I propose we are a year into a 5 year long ‘DeFi Mega Hype Cycle’ = doubling of 2017 $600bn highs and a sustained mainstreaming of the industry
#DeFi 2.0 | Innovations for Institutional Adoption
Full Article HERE outlierventures.io/research/defi-…
Thread 👇
#DeFi 2.0 | Innovations for Institutional Adoption
Full Article HERE outlierventures.io/research/defi-…
Thread 👇
By 'Institutional DeFi' I mean the full spectrum from;
Crypto Native Startups to Fintech, the commercially Underbanked (like SMEs) all the way to large Financial Institutions
..
Crypto Native Startups to Fintech, the commercially Underbanked (like SMEs) all the way to large Financial Institutions
..
Key Innovation Triggers:
(1) #NFTs (Non Fungible Tokens)
(2) Confidentiality Solutions (ZKPs, bulletproofs, Secret Contracts)
(3) #DIDs (Decentralised Identifiers) & Verifiable Claims
(4) #AEAs (Autonomous Economic Agents)
(1) #NFTs (Non Fungible Tokens)
(2) Confidentiality Solutions (ZKPs, bulletproofs, Secret Contracts)
(3) #DIDs (Decentralised Identifiers) & Verifiable Claims
(4) #AEAs (Autonomous Economic Agents)
(1) #NFTs (Non Fungible Tokens)
in an Institutional #DeFi context;
digital representations of / or access / ownership rights to something unique, entirely digital or a twin to physical assets
(eg. property like a car or real estate)
in an Institutional #DeFi context;
digital representations of / or access / ownership rights to something unique, entirely digital or a twin to physical assets
(eg. property like a car or real estate)
(2) Confidentiality solutions:
private data, transactions & compute
(a) Privacy primitives become common (e.g. ZKPs, EY Nightfall, bulletproofs, zkRollups)
(b) Privacy L2 scaling solutions (e.g. Aztec)
(b) Transaction Mixing
(c) General purpose confidential compute
private data, transactions & compute
(a) Privacy primitives become common (e.g. ZKPs, EY Nightfall, bulletproofs, zkRollups)
(b) Privacy L2 scaling solutions (e.g. Aztec)
(b) Transaction Mixing
(c) General purpose confidential compute
(3) Decentralised Identifiers (DIDs) & Verifiable Credentials
DIDs = identifies any subject decoupled from centralized registries, identity providers, and certificate authorities.
VCs = exchange info with verified provenance and unchanged integrity
DIDs = identifies any subject decoupled from centralized registries, identity providers, and certificate authorities.
VCs = exchange info with verified provenance and unchanged integrity
(4) Autonomous Economic Agents (AEAs)
Intelligent agent acting on owners behalf with limited to no interference whose goal is to generate economic value
Allowing more complexity at smart contract logic and execution layer of DeFi
+ AI Lego for Money Lego
Intelligent agent acting on owners behalf with limited to no interference whose goal is to generate economic value
Allowing more complexity at smart contract logic and execution layer of DeFi
+ AI Lego for Money Lego
.. AI Lego for Money Lego (Open and accessible off-chain lego)
Complex off-chain logic + on-chain smart contract logic to proactively respond to external events (via oracles).
Complex off-chain logic + on-chain smart contract logic to proactively respond to external events (via oracles).
The question is: how can DeFi onboard new institutional users to benefit from its innovations, without becoming too centralised in the process?
Lets look at how we can..
Lets look at how we can..
Lowering the barrier to institutional participation:
(1) Compliance
(2) Risk Management
(3) Collateralisation
(4) Accessibility & Usability
(5) Market Efficiencies
..
(1) Compliance
(2) Risk Management
(3) Collateralisation
(4) Accessibility & Usability
(5) Market Efficiencies
..
(1) Compliance
'Decentralized KYC & AML' via reusable DIDs and verifiable credentials delivered through an open verifiable claims market which removes regulated counterparty requirements from the #DeFi Protocols
'Decentralized KYC & AML' via reusable DIDs and verifiable credentials delivered through an open verifiable claims market which removes regulated counterparty requirements from the #DeFi Protocols
(2) Risk Management
Insurance / Reinsurance as #NFTs
DeFi needs a native form of insurance contract and mutualisation to minimise financial exposure to risk where it can’t be removed technically e.g. @NexusMutual
Insurance policies as NFT collateral for Reinsurance markets
Insurance / Reinsurance as #NFTs
DeFi needs a native form of insurance contract and mutualisation to minimise financial exposure to risk where it can’t be removed technically e.g. @NexusMutual
Insurance policies as NFT collateral for Reinsurance markets
(b) Administration / Custody
DIDs for permissioning of ‘organisation wallets’, containing digital portable credentials to confirm an orgs identity and verify the authority of employees / reps to act on behalf of the organisation
DIDs for permissioning of ‘organisation wallets’, containing digital portable credentials to confirm an orgs identity and verify the authority of employees / reps to act on behalf of the organisation
(c) Trustful Oracles
For institutions to trust DeFi, automation via smart contracts, they need increased surety in oracles and their truthfulness to achieve compliant levels of reporting and security and resilience to manipulation.
For institutions to trust DeFi, automation via smart contracts, they need increased surety in oracles and their truthfulness to achieve compliant levels of reporting and security and resilience to manipulation.
(d) Native Credit Scoring
Attestation about assets via verifiable credentials linked to DIDs as NFTs a native onchain credit profile for credit scoring (augmented by staking & oracles for risk adjusted credit profiles)
Attestation about assets via verifiable credentials linked to DIDs as NFTs a native onchain credit profile for credit scoring (augmented by staking & oracles for risk adjusted credit profiles)
(e) Analytics & Fundamental Analysis
AI Analytics & Monitoring for CeFi to manage structural financial and compliance risks and activity around major dApps and associated assets inc. investment and usage behaviours and on-chain activity patterns around DeFi services
AI Analytics & Monitoring for CeFi to manage structural financial and compliance risks and activity around major dApps and associated assets inc. investment and usage behaviours and on-chain activity patterns around DeFi services
(3) Collateralisation
(a) #NFT Commodities / Derivatives
Most institutions will only come into DeFi if there are assets they know, understand and can price such as real world commodities, derivatives or things like real estate via STOs and NFT synthetics
(a) #NFT Commodities / Derivatives
Most institutions will only come into DeFi if there are assets they know, understand and can price such as real world commodities, derivatives or things like real estate via STOs and NFT synthetics
(b) Income bearing NFTs
The problem with #DeFi 1.0 yield, was the yield was not linked to actual income, rather a form of subsidised user acquisition and therefore unsustainable.
we need income bearing instruments wrapped as NFTs (e.g. invoice factoring or SME wrapped debt)
The problem with #DeFi 1.0 yield, was the yield was not linked to actual income, rather a form of subsidised user acquisition and therefore unsustainable.
we need income bearing instruments wrapped as NFTs (e.g. invoice factoring or SME wrapped debt)
(c) Multi-asset swaps
How do we swap STOs, CBDCs and crypto and vice versa?
If NFTs can each carry wallet KYC & AML permissioning all assets can still co-exist in the same decentralised environment and be freely exchanged with one another in pairs or mixed into baskets
How do we swap STOs, CBDCs and crypto and vice versa?
If NFTs can each carry wallet KYC & AML permissioning all assets can still co-exist in the same decentralised environment and be freely exchanged with one another in pairs or mixed into baskets
(d) Access Tokens
Access to digital vaults with collateral inside rather than a digital representation of collateral or a right (potentially a security)
NFTs could be access to underlying collateral and be burnt / consumed when used (rental or a trust arrangement)
Access to digital vaults with collateral inside rather than a digital representation of collateral or a right (potentially a security)
NFTs could be access to underlying collateral and be burnt / consumed when used (rental or a trust arrangement)
(4) Accessibility Usability
(a) Administration: Accounting & Taxes
Accounting APIs that remove administrative burden of filing end of year tax returns of increasingly complex multi-protocol products that will put off many or limit their trading activity and frequency.
(a) Administration: Accounting & Taxes
Accounting APIs that remove administrative burden of filing end of year tax returns of increasingly complex multi-protocol products that will put off many or limit their trading activity and frequency.
(b) CeFi to DeFi Bridges
Traditional finance has amassed decades of complex legacy IT systems that are often antiquated and difficult for newer external technologies to directly integrate with. Requiring new bridges to be built between CeFi and DeFi.
Traditional finance has amassed decades of complex legacy IT systems that are often antiquated and difficult for newer external technologies to directly integrate with. Requiring new bridges to be built between CeFi and DeFi.
(c) UX / Prime brokerage
'Deep' multi protocol #defi bring increased complexity and risk which need to be aggregated into better UXs to abstract complexity
'Deep' multi protocol #defi bring increased complexity and risk which need to be aggregated into better UXs to abstract complexity
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