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Conquering decentralized financing: custodian banks enter

June 1, 2020

The future of finance is decentralized. In an effort to facilitate this forecast, Decentralized finance or DeFi become an attractive perspective for investors and companies alike. To take advantage of this decentralized ideal, rivals in the Ethereum sector are afraid of losing potential profits and using their own blockchains to gain dominance. When we peaked earlier this year, DeFi exceeded insured assets of USD 1 billion. This was a significant blessing for the Ethereum ecosystem, which dramatically increased its value proposition and prompted competitors to take a closer look.

As the Ethereum ecosystem is closely linked to DeFi, it is the first point of contact for decentralized app developers. As such, Ethereum offers some of the best and brightest. With this success, Ethereum’s rivals are fighting. This suggests that the DeFi sector will continue to grow, but it also means that investors need a multi-chain solution.

Blockchain envy

A white paper published by Binance last month describes the creation of a new blockchain. The company, known as the “Binance Smart Chain”, wants to enable the company to create smart contracts.. The Smart Chain is implemented in addition to the existing Binance chain and also supports the Ethereum virtual machine. As a result, the interoperability and planning functions of the EVM are integrated into the Binance chain. This will theoretically make it much easier for developers to just jump to Binance.

Conquering decentralized financing: custodian banks enterConquering decentralized financing: custodian banks enter

Binance is not alone in this effort. Other centralized exchanges, including Huobi and OKEx, have released their plans for individual blockchain ecosystems.. After the Binance Chain Spot in 2019, both OKEx and Huobi unveiled plans for their own chains.

These exchanges and their new blockchains are probably making a step for the DeFi sector.and it’s easy to understand why. Companies that focus on cryptocurrency generally accept that the future of finance is decentralized. However, many are currently operating on regional and centralized platforms and are exposed to unique sources of error that the industry should avoid. The exchanges are now realizing that they need a global phase to reduce risk and open up liquidity. DeFi is this global stage and the exchange knows it.

This race to the top will inevitably encourage much more innovation in different ecosystems as well as endless opportunities and options for investors. However, this also means a lot more management, so traders can navigate between separate blockchain ecosystems.

Another factor is Ethereum’s dominance over DeFi and the development of Ethereum 2.0, which offers new scale solutions and additional space for the further growth of your DeFi ecosystem.. While most of the DeFi-based protocols developed today require ether (ETH), it is a competition for Binance and its contemporaries that can build the fastest and most efficient chain to attract the greatest number of developers and users.

As Ethereum’s DeFi sector grows, so does the benefit for ether. Competitors have recognized this and now want the equivalent with their own chain and token to conquer market dominance.

Guardian of DeFi

Given the breadth and size of the companies behind these blockchain companies, it can be rightly said that each company will be successful in its own way. This, in turn, will likely generate new participants to join the DeFi fight, creating a network effect where DeFi becomes the new standard. However, With so many conflicting DeFi ecosystems, operating costs increase when users work on separate chains. This also affects the user experience, as investors have to reconcile wallets and user interfaces, which brings us to compatibility.

In the area of ​​cryptocurrency, we notice a certain degree of incompatibility problems, especially between wallets and blockchains. Although there are multiple DeFi-enabled wallet solutions, not all of them currently support multiple chains. In particular, however, do not offer custody services.

Given that more and more companies are entering the DeFi ecosystem to maximize profit potential and increase their investments, ensuring the secure storage of private keys across multiple chains will be more than just a headache, especially when users exercise custody.

While Ethereum makes the buying and trading process a little easier with atom swaps, Bitcoin routing (BTC) via Ethereum or Binance Chain becomes much more difficult. There are solutions and others are being worked on, but they are still in their infancy.

However, Under the current circumstances, decentralized management of tokens across multiple protocols is an exceptional challenge. This only gets more complicated as blockchain ecosystems expand..

Like the stock exchanges, some custodian banks are beginning to recognize the importance of decentralized financing. Although the compatibility problem persists even for these entities. Fortunately, with bespoke solutions like re-signature technology, independent real-time custodians can act as an intermediary between DeFi and traditional finance, allowing users to securely store a variety of cryptocurrencies and conduct transactions through any blockchain ecosystem.

The responsibility is not just to support multiple chains. Since DeFi and cryptocurrencies in general are trying to establish themselves more firmly in the financial sector, they are examined more closely, particularly with regard to security. This is especially true for institutional and accredited actors, and it is vital for the industry to pull these investors aside to achieve a new standard.

As already mentioned, current storage solutions in DeFi are limited to self-storage options for individual users. This represents a considerable obstacle to the introduction, especially for institutional investors. Without an external independent custodian, investors enter the DeFi sector completely unprotected, unregulated and uninsured. They also lack essential custodian services, including insurance, price and margin alerts, multi-signature accounts, and whitelists.

This is one of the crucial roles that custodians can play, be it in the emerging DeFi sector or in the broader crypto industry. You add extensive controls. This includes accounts with multiple signatures that allow multiple account holders, i.e. H. Several employees or even a couple who can sign transactions. Organizations can also opt for multi-signature controls, which require more than one user to sign a transaction to ensure trust and tenure risk management. Other controls like white and black lists prevent misuse of funds and filter out unwanted or unofficial addresses.. Alerts let you track performance, report a change in asset prices, and notify you of margin commitments to prevent positions from being liquidated.

By providing these additional levels of utility and security, along with effective private key storage, custodians provide a secure way for retail and institutional investors to access digital and DeFi assets in general. This is especially true because compliance is becoming a focus. Custodians can not only offer security with regard to the “Know Your Customer” and “Anti-Money Laundering” protocols within the gray area of ​​DeFi regulation, but also insurance offers, which are one of the most pressing concerns of almost all investors. .

There is also a growing demand from individual and institutional investors for governance and engagement functions that are directly integrated into wallet and bill of exchange accounts. Custodians need to think about the end user and how their digital assets can work better for them in the safest and easiest way while in custody.

Future-oriented custodians can try to integrate the most common DeFi protocols directly into the user interface. By enabling DeFi’s notification and portfolio tracking tools to assess inventory, traders and statistics, and compare rates across different protocols, custodians can improve the overall user experience.

The views, thoughts and opinions expressed here are only those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Alex Batlin is the founder and CEO of Trustology, an award-winning international FinTech company that focuses on providing institutional investors and the broader crypto-ecosystem with secure, next-generation escrow wallet solutions to securely manage crypto assets in the chain and at Stock market to offer real time. Alex is an entrepreneur with extensive experience in the management and development of banks and blockchain, previously at BNY Mellon, UBS and JPMorgan Chase.