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Merging traditional finance and DeFi is critical for mass adoption

In order to achieve real mass adoption and to unlock the full potential of the crypto industry, we have to connect traditional finance with DeFi.

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When capital markets opened for the first time this year on Jan. 4, 2021, the focus of the front page of the Financial Times was squarely aimed at Bitcoin (BTC) with the headline: “Bitcoin tops $34,000 as record-breaking rally resumes.”

That Bitcoin is seeing institutional buy-in on a level unsurpassed in its history is certain, but what does this mean for the wider crypto space? How do we move from institutional adoption of Bitcoin or other crypto assets to connecting traditional finance markets with the decentralized finance and digital asset markets? If we can achieve this lofty goal, the inflows of capital, resources and attention would far surpass even the significant current DeFi space, thus leading to greater potential.

Few institutions are now in a position where they can invest in Bitcoin. The difficulty to reach such a stage should not be underestimated, and those funds investing in Bitcoin remain outliers. The largest institutional investors, such as pension and insurance funds, require highly sophisticated and liquid markets, lengthy historical track records, as well as needing to overcome significant internal risk and compliance concerns. These hurdles are multiplied when it comes to using crypto protocols. For example, a company looking to use digital tokens representing a firm’s shares on the Ethereum blockchain must adhere to existing financial and capital market regulations globally. This includes aspects, such as cross-border Know Your Customer and Anti-Money Laundering regulations.

To enable institutions to adopt DeFi, we must first let them access it in a compliant manner. This does not mean that all DeFi must be unduly regulated; this would defeat the purpose of a decentralized system. However, it is possible to introduce a protocol to facilitate the compliant use of DeFi. There are several aspects that make up such a system.

Digitization

While it is easy to create a digitized asset, the difficulty arises when compliance is introduced. One of the most pertinent issues centers around global securities regulation where there is a range of required actions to undertake before issuing a security, including consulting legal advice, documentation, due diligence, marketing and secondary trading, and corporate actions. These all incur further costs.

The unyielding inefficiencies throughout this process also create an opportunity for DeFi. A protocol able to solve these issues would significantly reduce a firm’s capital and resource expenditure while also improving the process for investors who would be able to access and trade in a similar manner to crypto assets today.

Due diligence checks

Due diligence checks including KYC and AML are a costly and mandatory process for institutions. An investor investing with multiple firms must complete the same checks with each of them — a time-consuming process for all parties. It also means that the investor is trusting multiple institutions with sensitive data.

DeFi offers the opportunity to redefine how KYC is completed. Instead of each firm doing its own KYC, an investor could conduct KYC protocols with an approved partner. This would enable the investor to retain control of their data, while institutions could share the burden of the KYC cost across each other. Institutions would, of course, be able to complete their own KYC if they did not approve of the KYC operator.

Data

Access to — and control of — data has become ever more contentious. The two prominent issues facing institutions regarding data are the security and privacy of users’ data, particularly post General Data Protection Regulation, as well as the ability to connect to DeFi through easy-to-use application programming interfaces.

User data can be protected using encryption methods such as zero-knowledge proofs, which enable users to share validated data with a third party without the data being revealed to said party. This would allow investors to prove they are eligible to complete a transaction without having to prove who they are or why they are eligible. This data can be encrypted and stored securely while always remaining in the hands of the user.

Institutions also require an easy way to share data. This can be achieved through APIs that will make it easy for institutions to connect to DeFi protocols while remaining compliant with regulations such as the European Union Payment Services Directive 2. This API needs to facilitate both on-chain and off-chain data.

Cross-border regulation

Requirements and processes vary from country to country, while fines for non-compliance have risen significantly since the financial crisis. The resource burden to meet this expanding compliance oversight has likewise increased. At the same time, investors expect to be able to invest globally rather than being constrained to their own jurisdiction. Blockchain technology, with its ability to digitize assets and transact instantly with peers globally, can provide a means to achieve this, but it requires firms to be able to maintain the same regulatory standards.

That is why a protocol is needed that can embed regulation at the layer level. Once a rule has been created or amended and subsequently accepted as smart contract logic, firms have no choice but to adhere to it. Furthermore, this can be tied in with the previously mentioned KYC checks to ensure an investor is able to invest in the product they want. This automizes cross-border transactions, significantly reducing costs for institutions.

DeFi investment terminal

Just like institutions leverage tools, such as Bloomberg Terminals, similarly, they require DeFi investment terminals to allow for access to real-time, actionable data. This would consolidate information across decentralized exchanges and blockchains, providing powerful and granular information.

Bridging TradFi and DeFi

There is often reluctance in the DeFi sector to countenance building a solution acceptable to TradFi. The fear is that it will corrupt the DeFi space. This is an unrealistic concern. DeFi, and blockchain more generally, offer myriad advantages to the financial system, which can be leveraged to make TradFi firms more efficient and compliant with ever more complex and increasing regulations.

By bringing TradFi to DeFi, we are in a more effective position to shape the future of finance. It would bring resources and attention on a different scale to what we currently have. We have seen the power that just a few teams can have in creating “Lego” blocks, on which the rest of DeFi has built. The task now is for us to build out the infrastructure through which TradFi can also develop.

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

Rachid Ajaja is the founder and CEO of AllianceBlock, the globally compliant decentralized capital market. With a deep-rooted understanding of traditional financial institutions, Rachid spent six years as a quantitative risk analyst at Barclays Investment Bank, BNP Paribas and Moody’s Analytics. A serial entrepreneur with a passion for modeling, analytics development, quantitative analysis and data science, for the last decade, Rachid has been developing and implementing models and methodologies to help organizations with forecasting and risk management. He currently also serves as a venture partner at Alpha Omega Capital.

While it is easy to create a digitized asset, the difficulty arises when compliance is introduced. One of the most pertinent issues centers around global securities regulation where there is a range of required actions to undertake before issuing a security, including consulting legal advice, documentation, due diligence, marketing and secondary trading, and corporate actions. These all incur further costs.

Source: https://cointelegraph.com/news/merging-traditional-finance-and-defi-is-critical-for-mass-adoption

merging-traditional-finance-and-defi-is-critical-for-mass-adoption

Cointelegraph

Crypto miners eye cheap power in Texas, but fears aired over impact on the grid

Can Texas meet the electricity demands of migrating Chinese Bitcoin miners?

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The recent crackdown on crypto mining in China has seen concerns expressed over the potential impact a hashrate migration could have on Texas’ unreliable electricity market, as an increasing number of dislocated miners eye the Lone Star State.

Texas’ abundant sources of renewable energy and highly deregulated power grid make the state an obvious choice for migrating miners from China and elsewhere, with 20% of Texan electricity being generated by wind as of 2019.

Speaking to CNBC, Brandon Arvanaghi, a former security engineer at crypto exchange Gemini, predicted Texas will see “a dramatic shift over the next few months” as miners look to set up shop.

“We have governors like Greg Abbott in Texas who are promoting mining. It is going to become a real industry in the United States, which is going to be incredible,” he said, adding:

“Texas not only has the cheapest electricity in the U.S. but some of the cheapest in the globe.”

Castle Island Ventures’ founding partner, Nic Carter told CNBC that half of the world’s hashing power could ultimately exit China’s borders and will need new homes, stating:

“Every Western mining host I know has had their phones ringing off the hook. Chinese miners or miners that were domiciled in China are looking to Central Asia, Eastern Europe, the U.S., and Northern Europe.”

Global hash rate has fallen by one-third since early May following reports that China’s mining industry would be subjected to stricter supervision.

But is the Texan power grid up to the challenge of providing power for an influx of more crypto miners? The Electric Reliability Council of Texas (ERCOT) has just requested that Texans curb their electricity usage amid the recent heatwave that saw many residents turning up their air conditioners earlier this week.

Roughly 12,000 megawatts of generation capacity was offline as of Monday — enough to power 2.5 million homes. ERCOT described the scale of forced outages as “very concerning.”

The regulator warned that a failure to heed the request could result in a repeat of the widespread winter power failures that left 69% of Texans without electricity, and roughly half without water in February. According to Buzzfeed, February’s outages could have resulted in up to 700 deaths in the state.

Angela Walch, a Texas research associate at University College London’s Centre for Blockchain Technologies, tweeted her concerns regarding the share of Texas’ electricity being devoted to Bitcoin mining, emphasizing that her family has been “asked to reduce our air conditioning use, not run washing machines & dryers, etc.”

Obviously, Bitcoin is not the sole cause of this cluster*^% that our poor political leadership in Texas has caused.

But, I am curious to know the portion of the grid it uses. Maybe Bitcoin miners are the first to be shut down in times of grid stress.

— Angela Walch (@angela_walch) June 15, 2021

However Tierion CEO Wayne Vaughan responded by asserting that much of the electricity used to power Texan mining operations comprised stranded resources that “would never be able to reach your home to power your appliances.”

Others argued that wholesale Bitcoin mining operations could actually alleviate Texas’ power issues, with Texas’ seasonal surges in electricity demand incentivizing miners to sell power back to the state’s grid that otherwise go uncaptured.

In September 2020, the Peter Thiel-backed crypto miner Layer1 in West Texas reported it had reaped profits exceeding 700% by selling renewable electricity back to the grid amid surging summer demand.

While up-to-date data for global hashrate distribution is not available, the Cambridge University’s Bitcoin Electricity Consumption Index (BECI) estimates that China represented 65% of the world’s hashing power as of April 2020.

Earlier this month, district regulators in Western Xinjiang and Yunnan issued notices mandating the suspension of virtual currency mining enterprises. BECI estimates the two regions account for 40% of the country’s hash rate.

Castle Island Ventures’ founding partner, Nic Carter told CNBC that half of the world’s hashing power could ultimately exit China’s borders and will need new homes, stating:

Source: https://cointelegraph.com/news/crypto-miners-eye-cheap-power-in-texas-but-fears-aired-over-impact-on-the-grid

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Bitcoin price hits $40K as Paul Tudor Jones slams Fed inflation claims

Bitcoin price action is back at $40,000 as Paul Tudor Jones recommends a 5% BTC portfolio.

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Bitcoin (BTC) passed $40,000 on June 14 as a consolidation period snapped to unleash a solid breakout.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingViewBTC price breaks out past $40,000

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD gaining 3% in under an hour, reaching $40,500 on Bitstamp.

The largest cryptocurrency capitalized on upside which resulted from a new positive tweet from Elon Musk over possible acceptance by Tesla in the future.

Earlier, Cointelegraph reported on traders betting on a leg up to around $47,000 before a correction.

A look at buy and sell positions on major exchange Binance showed support at $38,000, wit resistance at $40,500 the next hurdle for bulls.

Buy and sell levels on Binance as of June 14. Source: Material Indicators/TwitterTudor Jones advocates 5% BTC allocation

Bitcoin reached a $2 trillion market cap because of a “dichotomy” in Federal Reserve policy which “questions” its credibility, says famous trader Paul Tudor Jones.

In an interview with CNBC on June 14, the founder of Tudor Investment Corporation sounded the alarm over advancing inflation.

After last week’s consumer price index (CPI) report showed that U.S. inflation had hit a 13-year high, Bitcoin’s deflationary nature has rarely looked so appealing.

For Tudor Jones, the idea that higher inflation is just temporary due to recent events, as suggested by the Fed and central banks in general, is a myth.

“It’s somewhat disingenuous to say, for them to say, that inflation is transitory,” he told CNBC’s Squawk Box segment.

Today’s environment is entirely different to that which saw episodes of inflation in the past, such as 2013, and as such, there is little sense in the Fed applying the same forecasts.

CPI was much lower then, Tudor Jones noted, while now, unemployment and jobs also roughly equal each other.

Related: Paul Tudor Jones says Bitcoin is ‘like investing early in Apple or Google’

Meanwhile, gold and Bitcoin have provided a refuge for many. Despite the precious metal vastly underperforming Bitcoin in terms of gains, it remains near record highs.

“When you look at the Fed today and the Fed back then, you wonder how can you have such wildly different policy views on what constitutes the right levels for employment, the right levels for inflation,” he continued.

“How can you have that with an eight-year timeframe? It’s almost like a split personality and you wonder why Bitcoin has a $2 trillion market cap and gold’s at $1,865 an ounce. And the reason why is you have this dichotomy in policy that again questions — questions — the institutional credibility of something.”

Ultimately, a 5% Bitcoin allocation is one of the only things he advocates to those seeking portfolio advice.

“I say, ‘OK, listen, the only thing I know for certain is I want to have 5% in gold, 5% in Bitcoin, 5% in cash, 5% in commodities at this point in time,'” he added.

A look at buy and sell positions on major exchange Binance showed support at $38,000, wit resistance at $40,500 the next hurdle for bulls.

Source: https://cointelegraph.com/news/bitcoin-price-hits-40k-as-paul-tudor-jones-slams-fed-inflation-claims

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Investment product issuer 21Shares will list Bitcoin ETP on Aquis Exchange

Exchange-traded product issuer 21Shares said it will make its Bitcoin ETP available to U.K. professional investors through the Aquis Exchange.

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The announcement comes the same day as ETC Group’s Bitcoin ETP began trading on the same exchange.

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Investment product issuer 21Shares will list Bitcoin ETP on Aquis Exchange

Switzerland-based 21Shares, formerly known as Amun, has said it will make its Bitcoin (BTC) exchange-traded product available to traders in the United Kingdom through the Aquis Exchange.

According to an announcement from 21Shares, its Bitcoin exchange-traded product (ETP) will be available to professional investors on the Aquis Exchange this summer. U.K.-based firm GHCO will be acting as the crypto ETP’s liquidity provider, with 21Shares saying the product would be “engineered like an [exchange-traded fund].”

“ETPs trade on exchanges in a similar manner to a listed stock and institutional investors in the U.K. will get exposure to Bitcoin via a regulated framework and structure which they are already accustomed to,” said 21Shares. “The ETP has been designed to provide institutional U.K. investors with secure and cost-effective exposure to Bitcoin without the associated Bitcoin custody and security challenges.”

21Shares reported more than $1.5 billion in assets under management across 14 ETPs available on European stock exchanges. One unit of the firm’s Bitcoin ETP on Aquis will reportedly represent exposure to 0.00035 BTC, or roughly $12.54 at the time of publication.

A few companies have begun expanding their crypto products to the U.K. market. Also on Monday, crypto investment manager ETC Group’s Bitcoin ETP began trading on the Aquis Exchange in London and Paris. However, the country’s financial watchdog, the Financial Conduct Authority, banned the sale of crypto derivatives to retail traders in January.

21Shares reported more than $1.5 billion in assets under management across 14 ETPs available on European stock exchanges. One unit of the firm’s Bitcoin ETP on Aquis will reportedly represent exposure to 0.00035 BTC, or roughly $12.54 at the time of publication.

Source: https://cointelegraph.com/news/investment-product-issuer-21shares-will-list-bitcoin-etp-on-aquis-exchange

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