The BIS Urges the Regulation of DeFi Networks

Established in 1930, the BIS, or Bank for International Settlements for short, is a group of central banks. The main goal of the BIS is to help central banks accomplish and maintain financial and monetary stability through inter cooperation. Another important task of the BIS is to serve as a bank for various central banks.

The Bank for International Settlements is owned by 63 central banks that represent nations worldwide. Altogether, those countries account for around 95% of the world’s GDP. The headquarters are located in Basel, Switzerland. Also, it has two representative offices, one in Mexico City and the other one in Hong Kong SAR. Plus, the BIS has Innovation Hub Centres around the globe.

By analyzing banking services, they keep innovating their processes to pursue financial and monetary stability. Although, the concerns keep increasing about networks that offer DeFi services that might not be as “decentralized” as they claim. Since the DeFi sector is rapidly growing and many new investors are joining this trend, the BIS urges the regulation of DeFi networks. 

The institution set a medium-term strategy called Innovation BIS 2025, aiming to leverage tech. The plan seeks to create new collaboration channels for the central banking community in these fast-changing times. 

The Reason Why the BIS Urges the Regulation of DeFi Platforms

There’s a growing concern about DeFi platforms, the way they operate and advertise their products, but mainly the lack of regulation. They stated their preoccupation about DeFi being a “decentralization illusion” at the beginning of December. Decentralized finance is a fast-growing sector of the crypto economy. This particular sector promises to provide classic financial products such as savings accounts and loans without intermediaries such as banks.

However, the main worry is that platforms may offer DeFi services or products that might not be as decentralized as they claim. The BIS urges the regulation of DeFi networks as they hope this will help stabilize the new economy. 

The general manager of the BIS, Agustín Carstens, stated that they found that DeFi tends to be elusive. He also mentioned that there are some issues related to the fact that at some point, some agents playing a critical role might not be in it for the best interest of their users. The BIS urges the regulation of DeFi services so investors can be safe, which eventually could boost trust in the market.

What is the Response of the DeFi Sector?

The co-founder of Swarm Markets, Timo Lehes, stated that there are areas of opportunity to improve. However, he mentioned that many institutions in the crypto space are already working to fix the issues pointed out by the BIS. 

Lehes said that even though the BIS urges the regulation of DeFi ultimately, each protocol will decide whether or not to transition to a compliant business model. DeFi could gain from operating within the framework that focuses on protecting investors while maintaining open access to the markets.

What Is at Stake?

Many decentralized finance services work on top of Ethereum, which token’s Ether, one of the biggest crypto coins. The transactions are facilitated by smart contracts that automate processes through code lines. Currently, over $100 billion worth of funds sits on Ethereum-based decentralized finance protocols. Curve, Maker, and Compound are a few of the biggest platforms. 

The Bank for International Settlements believes the risks surrounding DeFi have been contained to crypto markets. Although, their concern is that if it goes forward, the growth of DeFi might be a threat to financial stability.

Conclusions

It’s well known that DeFi platforms are luring new investors with the promise of big returns on their savings and loans. But one should keep in mind that there has been an increase in the number of fraudsters and hackers taking advantage. In 2021 there was a loss of over $10 billion in DeFi thefts and scams. 

The BIS flagged “severe” vulnerabilities within the sector, including highly-leveraged trades, lack of shock absorbers, and liquidity issues. Although it’s not all bad, there may be safe aspects, but there are others that may not. DeFi, although it might be on its way to regulation, still has a long way to go. Meanwhile, all of these pros and cons should make us seriously think about it.

DeFi Lost Billions to Theft in 2021

Elliptic, a risk management firm, declared that users of DeFi lost billions to scams and hacks. The number goes around $10.5 billion. The number is significantly higher when compared to the $1.5 billion from 2020. 

Decentralized finance stands for apps based on blockchain that enable people to go around the traditional banking system. With DeFi, it’s possible to bypass financial intermediaries to borrow, lend, save, or trade with other users. This is an option due to making use of automated smart contracts connected to protocols.

This particular sector of the crypto space currently has more than $250 billion in assets. Back in June 2020, its worth was less than $1 billion. A successful cycle was created by the rising prices of the coins, governance tokens, and increased use of protocols. People invested in the crypto space are seizing the moment and fast-growing their earnings.

The Downside 

As networks like Binance and Solana keep growing, they become more popular by the day. Although DeFi networks experienced growth in acceptance, subsequently, it also brought more theft. As the sector keeps riding the wave of popularity, many projects struggle to keep up with the industry. 

For thieves, all of this new boom in the industry translates to the possibility of stealing more funds. The firm Elliptic, an expert in risk management, stated that the core of this problem is poor cybersecurity. The issue with DeFi projects is that many startups don’t put enough resources into reinforcing the security. 

Another issue is that once the theft is done, recovering the funds is almost mission impossible. Crypto transactions are of irreversible nature, which makes the process of taking them back a challenging one. Which makes it one of the main reasons why DeFi lost billions in a short amount of time.

New projects are not the only one to blame. It is also the pressure of trying to keep up with this fast-paced industry. To satisfy the high demand for new products, the security of these protocols is exposed to threats. The mix of the named factors makes these startups the most attractive victims for attackers. When we say attackers, we mean of all kinds, from hackers working alone to nation-states.

The Other Side of the Coin 

Although a third party is the culprit behind the attacks in most cases, sometimes that’s not the case. Mistakes in cybersecurity can result in inserted “backdoors” by developers that lead to stealing the users’ funds. 

Just in the last couple of years, over $2 billion were stolen straight from DeFi applications. Elliptic also attributes $10 billion in losses as the value of some tokens declined due to theft or fraud. Although it’s a complex number to pin down, it’s even harder to calculate its total impact. Usually, when news breaks about some new theft, it translates to decreased confidence in the asset.

DeFi Lost Billions and What Are the Consequences?

Last year, most of the losses came from DeFi Ethereum, with $8.6 billion. The protocol started lending decentralized exchanges, derivatives products, and protocols. Uniswap, Synthetic, and MakerDAO are only some examples of this. Protocols of Binance Smart Chain are also responsible for $2.5 billion in losses since last year.

Conclusions

According to Elliptic metrics, users should be more careful when dealing with lending protocols. This mechanism enables people to borrow crypto from pools of other users. The protocols are highly vulnerable to economic exploits, just as they are to code exploits. As the crypto space becomes more mature, attacks will eventually be happening only at risky platforms. Until then, users should keep their eyes wide open and guard up. One thing is undeniable, as numbers show, DeFi has become an alluring paradise for hackers.

Top 5 DeFi Projects to Watch Out for in 2022

Decentralized finance (DeFi) is still reigning as one of the most popular terms related to financial markets. The peer-to-peer network is becoming a regular part of a colorful cryptocurrency landscape, capturing the interest of traders and investors of all sorts As we slowly inch towards 2022, we decided to look at the top 5 DeFi projects set to dominate 2022.

DeFi Definition

Let’s have a quick reminder about some DeFi basics. DeFi wants to bring the convenience of peer-to-peer transactions to investors. Decentralized finance platforms develop a space for lending, borrowing, trading, saving, and profiting from interest. And without that pesky usual bureaucracy! DeFi harnesses the positive parts of efficiency and smart contracts, which are virtual contracts that live on the blockchain.

Decentralized finance aims to get rid of needless paperwork since it’s situated on a digital blockchain. That also means less time wasted on bank transactions. Also, DeFi is beloved for removing third parties and other human intermediaries, such as attorneys.

Top 5 DeFi Projects to Watch Out for in 2022

Here are some of the Top 5 DeFi Projects that experts have singled out as interesting for 2022:

Aave (AAVE)

Aave started out named as ETHLend, and is a pioneering decentralized financial platform on the marketplace. To be more exact, it is a decentralized liquidity space that lets you borrow assets and earn incentives on deposits. Lenders and borrowers get connected in this DeFi area and they have equal lending opportunities. And did you know you can get rewards and incentives by staking the AAVE coin on the Aave DeFi platform?

Avalanche (AVAX)

This project is hailed as one of the quickest smart contracts platforms in the blockchain sector. They are no strangers to non-fungible tokens, as well. Avalanche also teamed up with SushiSwap (SUSHI), Chainlink (LINK), and the Graph (GRT) for a seamless DeFi experience. You could say that Avalanche rivals the popular Ethereum. That is due to the fact that it also offers quick transactions that take a blink of an eye. The project recently acquired $230 million in funding to go on with its decentralized finance initiative.

Chainlink (LINK)

This DeFi system and project has the goal to connect digital contracts with real-world information via oracle tech. The project will also publish a Programmable Token Bridge that will bring in a new communication system between decentralized finance blockchains. That will assist decentralized finance to scale as it should and skip over some hurdles that kept other blockchain projects from properly developing.

Compound (COMP)

This DeFi project is ideal for lending and borrowing opportunities. When you make a deposit to this project, you get CTokens which are used to buy cryptos on the platforms. These CTokens are a stamp of approval that lets others know that you have staked assets in the network and can borrow. And a whopping $800 million is the number of the platform’s value now.

Band Protocol (BAND)

Band Protocol resembles Chainlink and rounds up our Top 10 DeFi Projects. It focuses on DeFi oracles and gathers real-world info, which goes to digital contracts on digital ledgers such as ETH and Cosmos. Since decentralized finance requires outside data, like weather reports and sports scores, transferred safely to blockchain space, Band Protocol will remain an important player in the decentralized playing field.

DeFi Protocol Indexed Finance Loses $16 Million To a Hacker Attack

The DeFi protocol known as Indexed Finance got hacked at the beginning of October; the lost amount goes as high as $16 million. Index Finance is a decentralized finance project whose base is Ethereum. It issues tokens that track indexes in the market. Allegedly, the hacker got hold of the assets backing up the value of the index tokens and used the  opportunity to strike through a vulnerability in the smart contracts protocol. This project is the latest to be hacked in a series of attacks perpetrated by hackers trying to bring money into their pockets. 

How Was it Possible for Indexed Finance to Get Hacked?

The intrusion was a classic case of exploiting DeFi. The attacker employed the flash loan procedure, overloading the protocol with different new assets. That fact alone lowers the value of Indexed tokens, enabling the hacker to issue new ones and exchange them for cash. That’s precisely what happened this time; that’s how Indexed Finance got hacked. 

The Consequences

Currently, out of the six main assets in the protocol, two, DEFI5 and CC10 lost almost all of their value. One hour after the attack, DEFI5 had already dropped by 85%; the price went from $88.73 to an unfortunate new low of $3.67. CC10 was even more affected, declining by 98%, from a price of $62.50 to $0.74. The other three tokens known as NFTP, ORCL5, and DEGEN seem to be safe for now. And finally, the sixth asset, FFF, a meta index containing DEFI5 and CC10, was critically damaged and will have to end in the current form it is known. After Indexed Finance got hacked, a compensation plan was put in place.

The Hacker

On Friday 15th, the day after the hack, members of the project identified the culprit. The thief didn’t manage to cover his tracks well enough. Indexed Finance made him an offer in an attempt to resolve  the matter as soon as possible. Since they didn’t get a response from him, they proceeded with  an ultimatum. The company stated that they gave the attacker until Saturday midnight to refund all that was taken, or they would notify law enforcement. 

Later on, members of the DAO said through their Twitter account that they were pulling the breaks on the conditions previously stated. They found out that the hacker was a lot younger than they believed. They haven’t officially declared if they’re negotiating with him or what’s the current status of the situation.

Conclusion 

DeFi is a flourishing industry and a bright new opportunity for projects that wish to automate financial tools, such as banks. Most are built on the blockchain that has the second biggest crypto by market capitalization, Ethereum. Although promising, we have  to be aware that it’s still an experimental industry in an unknown territory. The technology that serves as the foundation for the protocols is still very new, and obviously vulnerable to hackers. The decentralized finance space requires auditors to prevent attacks; until that happens, we should be aware of the risks. Mainly to avoid loses and unpleasantries, like the protocol users had to go through when Indexed Finance got hacked.

Is China’s Bitcoin Ban Bullish for DeFi?

Although the ban in China is not entirely new to crypto users, it had a few updates that made it bullish for DeFi. The newly implemented rules make it all suitable for decentralized projects. Therefore it creates a tendency that we could call bullish for DeFi in general. Just a few weeks ago, China banned BTC altogether, or at least that’s the approach that many news outlets reported. In simple terms, the Chinese government declared  all transactions involving crypto illegal. It’s understandable that it’s not easy for the general public to grasp the whole concept of what China has done. Every time the country announces new guidelines, it wreaks havoc in the crypto space, thus wildly shaking the price of Bitcoin, among others.

Consequences For Other Sectors 

The other bans that China has implemented this year have brought consequences for various industries. Not only has the Chinese crypto industry suffered. Besides the miners who had to leave the country this year, retail traders and investors got blocked in China. Some DeFi projects such as Debank and Loopring have stopped IP addresses in China from accessing them. Also, crypto groups on WeChat in the country are now moving to Discord or Telegram. 

The Analysis About This Ban Being Bullish for DeFi

In theory, this last ban imposed by the Red Dragon is not so different from the previous ones announced. The main difference is that they’re making it very clear that it will be enforced more rigidly this time. This approach is due to the amount of government departments involved in the matter, it will all become more strict. The crypto community in China, including protocols of Decentralized Finance, is trying to approach the subject safely. They have already started blocking Chinese users due to the risk of getting investigated. There has been a minimal impact in the crypto community in a broader range since the ban back in May had already shaken the market. 

At the moment, crypto builders that are still in China have to remain entirely in anonymity. It is a challenging task to accomplish, full of risks and unfortunately not entirely possible every time. They must adjust the structure of their organization, the marketing strategy, and the way the expectations of their projects are met. 

In confidence, some DeFi founders said they are gradually closing business in China since most of their users are international. Now, it’s become clear that the old golden days when the empires were built by feeding the massive demand of crypto in China are over. The last ban is definitely a catalyst to the decentralization of crypto. It can be considered bullish for DeFi and also for the mindset that many in the crypto community are used to having. It will be interesting to witness how all of this will unfold, afterall, there are no boring days in crypto space.

Mark Zuckerberg and His Crypto Plans

Before the Big Boom

Mark Zuckerberg, born in New York in 1984, developed an interest in technology and computers from an early age. At the age of 12, he created a program for messages called Zucknet, also computer games just for fun. Years later, he developed software that big companies such as Microsoft and AOL were interested in buying. He enrolled in Harvard University but dropped out to focus full-time on developing his new company, Facebook.

Facebook Conquering the World

Mark Zuckerberg, the co-founder of Facebook, the most famous social networking site, announced that they plan to transform the company into a metaverse. The info was made public through a statement claiming that the firm is looking to invest 50 million. The budget should be spent in the next two years, bringing the Facebook Metaverse to life. Such ambitious projects aim to create a platform that has it all, social media, games, working space, DeFi, crypto, and more. 

Is Mark Zuckerberg Ready For This Move?

Many experts in the field have stated their disapproval of this particular project. Even though this is not the first metaverse in the crypto space, it is still the first of its kind. Other social media pioneers who have also mentioned having plans of a similar kind  are only focusing on providing DeFi services that use Bitcoin. On the other hand, crypto platforms are not aiming to dabble into social networks. The idea of Mark Zuckerberg is to use his already well-established media to boost his new project. Unlike Ethereum, the most famous metaverse for crypto, the Facebook Metaverse will implement the most extensive social networks into the mix. 

With this move, the social network pioneer is trying to get ahead of the next stage of the Internet. It seems to be that they are trying to create a new trend before the rest of the platforms out there go in a different direction and their tools become obsolete.

The Main Concerns

The skepticism comes from the fact that Facebook has been breached several times and compromised user information. Not only has the social network been the target of scrutiny, Mark Zuckerberg himself has also been called to court. He has attended court to clarify data breaches, electoral manipulation, and the sale of private user information. Realistically there is a significant amount of distrust about anything related to Facebook. Although not only that but to Zuckerberg as well. 

Experts have advised him not to build this platform but to use the blockchain that already exists instead. Blockchain technology is a significant threat to social networks. Eventually, if they’re not able to adapt, they’ll most likely disappear. Will Zuckerberg be able to deliver his very ambitious metaverse or not  still remains to be seen. For sure, this young entrepreneur from New York is not going anywhere and will give us more to talk about in the future.

The European Block Becomes the Strongest Crypto Economy

The central part of Europe, the West and the North, also known as the European block have reached the highest volume of digital trading currencies. That makes it the block with the most activity in crypto. A company specialized in blockchain analytics shared the news a few days ago through one of its reports. The report stated that the block received over $1 trillion in crypto only last year. That amount means that the region by itself represents 25% of the total activity in the crypto market. 

The Analysis Results Predict a Bright Future for the European Block

According to the report mentioned before, said block accomplished this due to a variety of factors. East Asia, the biggest longtime competitor , would always take the crown.Nonetheless, the main reason for the European block’s climb to the first place is the implementation of several new crypto regulations, especially those in China. Since July 2020, the activity in the crypto market has plummeted in the East Asian sector. Therefore, the region went down to third place on the list of most significant economies in the crypto space. North America, which holds second place, has a slower but more steady pace of growth.

The same analysis also revealed that the volume of transactions in the European block went up in a dramatic way. The block went up not only on digital assets but in services related to the industry as well. This finished the consolidation of the region in the world economy of cryptocurrencies. Additionally, them adopting crypto and starting implementing them into their day-to-day life makes a big statement. It means crypto is here to stay. Statistics show that Europe sent 25% of its crypto to other blocks around the world. As much as 34% of North America’s last year’s crypto acquisition came from Europe alone.

Investment Flow

There was a flow of institutions willing to invest, which provoked the excess of transactions. According to Chainalysis, $10 million was the total amount worth of said transactions. The crypto transactions made by institutions went from $1.4 billion to $46.3 billion in 12 months. Furthermore, institutional investors activity was responsible for over 50% of the crypto activity alone in the European block.

Most of those funds went to protocols in decentralized finance. Wrapped Ethereum and Ethereum are clear evidence of the info stated in the report. Bitcoin, stablecoins and altcoins went down 20%.

During those 12 months, DeFi protocols represent some of the five top services. Some protocols like Instadapp, UniSwapp, and dYdX are constantly on the Chainalysis list of the top services that got crypto-related transactions from the European block. The most searched centralized exchanges are Binance and Coinbase.

New Restrictions In China Caused Increase In DeFi

In the last few days, since China banned all transactions in crypto, there has been an increase in DeFi. Many protocols have been surpassing their average volume of trading; some even exceed centralized exchanges. For example, the price of DYDX, a decentralized exchange token, has increased by 35.9%. It got its highest price ever, $22.17, according to reports. Coinbase, the largest centralized exchange in the US, was also surpassed by the volumes of trading of the protocol.

Different from centralized exchanges, smart contracts are what DEXes mainly rely on. These are parts of code that execute automatically under pre-established circumstances . By doing this, DEXes enables users to trade crypto without a middle man. 

Antonio Juliano’s Statement

Last Sunday, the founder of dYdX, who was also an employee at Coinbase, made a statement on Twitter. In his post, he said that he was humbled and blown away by the growth that recently took place. He also pointed out that this is the first time that Coinbase was outperformed by dYdX.

After Juliano posted the tweet, there was an increase in DeFi, the volumes of trading at dYdX got even higher. It overpassed the $3 billion mark on spot markets and $6.3 billion in derivatives. At Coinbase, the trading volumes were at $3 billion in the last 24 hours. Present times look promising for other primary DEX tokens. Such is the case of SushiSwap (SUSHI) and Uniswap (UNI), which have recorded rising gains of 29% and 36%, respectively.

Chinese Investors Looking For New Alternatives

The increase in DeFi, particularly in the price of DEX tokens can be explained by the news China gave just a few days ago. The government of said country implemented new restrictions that had a significant impact on the crypto industry. Last Sunday, there was evidence on Twitter that Chinese traders are looking for new ways to make money. The most logical option for most of them is the DeFi space. There are also predictions that a significant amount of Chinese users will move into the decentralized finance world. Therefore, dYdX and MetaMask are expected to increase their number of users exponentially.

The New Restrictions

It was only last Friday when the PBoC (People’s Bank of China) released a list of newly forbidden activities related to crypto. Issuing tokens and trading were among said activities, therefore the increase in DeFi. They also banned exchanges outside of China to provide services to the local investors. Because of this, a couple of leading crypto exchanges (when it comes to the volume of transactions) already stopped registrations for new customers in China. These companies are already implementing their plans of cleaning up the accounts that already exist. The plan is  to get all this done by the end of 2021.

$12 Million Hack in pNetwork Because of a Bug in DeFi

A bug in the DeFi (decentralized finance) protocol of pNetwork was exploited to steal crypto; this time, the theft amounted to $12.5 million. The hacker, who still hasn’t been identified, stole 277 wrapped Bitcoins. The info was disclosed on Sunday by pNetwork’s developer’s team. They informed through Twitter that the attack was made through a bug in the codebase of the protocol. The aforementioned bug was used to attack the tokens of pBTC, which are a wrapped Bitcoin version of pNetwork. The stored crypto was on BSC (Binance Smart Chain). They also let the users know that all the other funds in the network were safe.

One of the many decentralized finance applications on the market is wrapped assets. In the cryptocurrency industry,  there is a growing ecosystem called DeFi. That ecosystem offers a lot of the same services that traditionally one could find in a bank or brokerage. The main difference is that there are no centralized institutions.

What Is A Wrapped Asset?

In the case of Bitcoin, the users have to lock it up on its original blockchain and issue a “wrapped version” that is possible to process on different networks. That version tracks the original asset’s price while being compatible with other blockchains. 

The Solution From The pNetwork Team

On the website, pNetwork has around $190 million worth in different crypto, all locked in the cross-chain bridges of the protocol. Fortunately, most of the crypto in the network remained safe during the attack. Only the pBTC tokens on the Binance Smart Chain suffered from the hack. Not so long after they discovered what was going on, the group of developers declared that they had pinpointed the bug. The team also stated that they had already been working on a possible fix for it, and they were waiting for everyone to review it.

A Different Approach

Meanwhile, the developers offered the hacker a “clear” bounty of $1.5 million to return the stolen funds. It isn’t clear at this point if their appeal to the better nature of the hacker paid off or not. It is not clear whether the attacker even responded to their offer if it got rejected or simply ignored. They tried to approach the situation through a statement on their Twitter account. The message was directed to the hacker, calling him “the black hat hacker,” They were offering a bounty as high as $1,500,000 if he returned the funds.

The team reassured the users that they were already working to fix the problem for those who were affected. Again, the only users who suffered from the attack were the holders of pBTC on the Binance Smart Chain. No further statements have been made regarding the subject so far, except the reassurance that they will keep working on the matter.

Avalanche AVAX

What Exactly Is Avalanche AVAX?

Avalanche (AVAX) is the quickest platform for smart contracts in the industry of blockchain. It also has the most significant number of validators to secure any PoS protocol. Some of the main features of Avalanche are speed, meager costs, and it is also green. The platform enables any app of smart contracts to overtop its opponents. On September 21, 2020, it launched its own network with its own protocol and technology. The platform’s growth can be noticed in the more than 200 individual projects it has secured over 1000 individual validators that produce blocks.  The community has 600,000 members all over the world. Whoever feels skeptical about Avalanche’s success just needs to give the app a try to understand what all the fuss is about.

Does It Have a Token?

Naturally, such a platform would have a token to monetize with; AVAX is the given name to Avalanche’s native token. AVAX is a scarce good that is hard-capped, commonly used to pay for fees. Mainly, it’s used to secure the platform and supply a basic unit for accounting among the variety of subnets on Avalanche. All of that while connecting the platform through the stake method. 

Where Can You Find Avalanche AVAX?

It is possible to find Avalanche AVAX across the leading exchanges and expanded trading pairs. 

The Avalanche Network is Growing Fast

Only four months after the mainnet launch of the platform and it’s already expanding faster than expected. The platform has been growing by leaps and bounds, private securities, Synthetics, DeFi, Stablecoins, Prediction Markets, etc. You name it, they have it, or they’re already working on it to make it happen. All of this is possible due to its high processing capacity, low fees of gas, which offers decentralization like no other. That by making it possible to scale the number of validators to millions with its protocol.

It is a platform of platforms consisting of thousands of subnets that create an interoperable network of numerous blockchains. Avalanche takes advantage of the revolutionary protocols to provide security, among other things, that offers decentralization while complying with regulatory requirements. Avalanche enables you to create your own app, tailor-made with specific blockchains that support several virtual machines and multiple languages. Those virtual machines can later be deployed in a particular blockchain network that is called a subnet. A subnet is a set of validators that work together to obtain an agreement on the state of a group of several blockchains.