<p>Smart contracts are computer protocols that allow an agreement to be verified, controlled, and executed digitally. Smart contracts are essential for Decentralised Finance, or DeFi. They are, however, one of the most vulnerable components of the DeFi ecosystem. The necessity of DeFi smart contract audit will be discussed in this blog.</p><p>Unaudited smart contracts are to blame for the hacks we read about in the press, as well as the tremendous losses sustained by those who utilize DeFi services. But, before we can understand the significance of smart contract audits, we must first understand how they function and where they are employed.</p><p>Smart contracts are used to facilitate transactions on the blockchain network. Signatories (using digital signatures), the contract's subject, and the contract's precise provisions are the three primary objects of smart contracts. Smart Contacts are employed in nearly every industry where Blockchain is used, including healthcare, insurance, supply chain management, financial services, legal processes, initial coin offerings (ICOs), and even government voting systems and business management.</p><h3 id="smart-contracts-benefits">Smart Contracts: Benefits</h3><p>The first and most obvious benefit of using smart contracts to enforce your transaction's conditions and terms is that they save you money by preventing third-party intervention. Furthermore, because they function on blockchain systems, there is no need for additional security or regular data backups. They are much faster than the traditional procedure in terms of speed since computer protocols automate processes, reducing the likelihood of errors and increasing accuracy.</p><p>It's also worth noting that blockchain is a shared database shared by many corporations and individuals. As a result, no single person, company, or body has authority over it, making it a skewed system. At the same time, keeping a shared record by numerous parties makes it unhackable.</p><p>Is smart contract enforcement legal? Let's tackle the most pressing concern on our minds.</p><h3 id="smart-contracts-legal-enforcement">Smart Contracts: Legal Enforcement</h3><p>UKJT Chair Sir Geoffrey Vos announced the results of the UKJT's consultation in a document titled Legal statement on crypto assets and smart contracts on November 18, 2019. The major result was that smart contracts can satisfy all of the legal criteria of English law Contract formation principles, and hence can be understood and enforced using conventional or well-established laws or legal concepts. As a result, the courts will be able to enforce them, which will assist to restore market trust.</p><p>This is just one example in one country, but it demonstrates how smart contracts have the ability to replace traditional contracts and provide a slew of benefits across the board. However, there is one key stumbling block that needs to be addressed.</p><h3 id="audit-of-defi-smart-contracts">Audit of DeFi Smart Contracts</h3><p>Although the underlying Blockchain technology of a smart contract is secure from hackers, the project may be hacked if we fail to maintain a high degree of security and code quality. As a result, smart contract cybersecurity is critical; failure to do so will not only result in significant financial losses but will also permanently lock down the assets under contract. Aside from that, these agreements are legally enforceable. As a result, a smart contract audit is strongly advised.</p><p>A smart contract security audit is a technical evaluation of a blockchain application and its supporting artifacts. The main goal of obtaining a smart contract audit is to uncover and destroy smart contract vulnerabilities, as well as to maintain track of the contract's interactions' reliability.</p><p>This can be accomplished in two ways: manually (by independent auditors who produce a report upon completion) or automatically (by software tools running over the codebase) by simply following four basic steps: assessment, verification, testing, and reporting.</p><h3 id="relying-on-past-references-will-keep-you-safe-in-the-uture">Relying on Past References Will Keep You Safe in the uture</h3><p>Furthermore, we will attempt to discuss and clarify some critical smart contract audit concerns that must be considered while eliminating flaws and errors from projects. But, first and foremost, I believe in learning from past mistakes before devising future tactics and goals. So, let's take a look at some recent cases/projects that were hacked because their smart contracts were not inspected.</p><blockquote>The DAO ? $55m  loss, etc.</blockquote><blockquote>Lendf.me ? $25m loss</blockquote><blockquote>Parity ? $150 000ETH  loss</blockquote><blockquote>bZx ? $645 000 loss</blockquote><p>Getting a smart contract audited requires your complete focus. You won't be able to hire someone to do it for you. While having your smart contract audited, you will face a number of problems, including:</p><blockquote>Reentrancy Attacks, short address assaults, replay attacks, and reordering attacks are some of the most prevalent weaknesses that smart contracts encounter. An audit must be thorough enough to cover all potential threats.</blockquote><blockquote>It can take a few days or perhaps a month to perform a smart contract audit. It's important to remember that the length of the audit is determined by the type of smart contract audit and the contract's size. Even if you get to go to the market as soon as possible, you must ensure that it is adequately audited.</blockquote><blockquote>An accurate smart contract audit can be difficult to obtain if you don't know who is qualified and trustworthy.</blockquote><h3 id="what-does-smart-contract-audit-entail">What Does Smart Contract Audit Entail?</h3><p>In the last section of this article, we discussed two methods for conducting an audit: manual and automated. We'll understand a well-defined approach for providing the finest audit for the smart contract here:</p><blockquote>Specification</blockquote><blockquote>Running Tests</blockquote><blockquote>Running automated Symbolic execution tools</blockquote><blockquote>Manual analysis of the code</blockquote><blockquote>Creating the report</blockquote><p>This method not only speeds up the process by allowing the audit and code fixes to happen simultaneously, but it also keeps the focus on detecting and correcting bugs rather than on producing a nice-looking report.</p><h3 id="final-thoughts">Final Thoughts</h3><p>To summarise, examples of numerous high-profile projects losing a significant amount of money have made us all aware of the critical requirement for a thorough smart contract audit. Even if your smart contract is audited, it does not guarantee that it will remain secure from new attacks indefinitely. The audit rules continue to evolve in tandem with the progress of DeFi. Any reliance on an oracle or another contract may, in some situations, result in a new vulnerability as a result of their alterations. As a result, conducting regular audits should be your preferred method.</p>

Hamid Akhtar

Auditing Your DeFi Smart Contracts is Important for Several Reasons

<p><em>"<strong>If you want to run a regular money exchange business with scale, it can be very expensive and risky. For decentralized finance (Defi) exchanges, though, rather than business owners, investors, and their creditors putting up capital for all the transactions to take place, Liquidity Providers (LPs) do it for them, making a Defi exchange much better than a traditional centralized financial business.</strong>"</em> ? Mark Cuban</p><p>The billionaire, who became a household name by selling Broadcast.com to Yahoo! for USD 5.7 billion in stock at the peak of dot.com, is now a liquidity provider on Defi exchanges. Cuban earns rewards helping users swap between tokens and sometimes boasts over 200% in yearly returns.</p><p>Mark Cuban is not the only one swept away by the benefits of Defi. It is pretty much gaining a lot of traction among the masses of late ? although the industry is still at a nascent stage. Closely representing an open finance model, Defi eliminates the middleman from financial transactions, enabling users to use digital currency and take ownership of the same instead of intermediaries like banks or credit card agencies. It is based on Ethereum ? one of the top cryptocurrencies. In laymen's terms, using Defi ensures that you don't need permission from governments or corporates to manage your finances or qualify for purchasing certain financial products.</p><h2 id="an-introduction-to-web3-what-decentralized-finance-has-to-do-with-it">An Introduction To Web3 &amp; What Decentralized Finance Has To Do With It</h2><p>You would have probably heard about Web3 around casually everywhere, but what exactly is it? From a contextual perspective, Web3 is an internet ecosystem where you can refrain from allowing companies such as Google to access your private information in exchange for using their services. This type of internet will be powered by advanced technologies such as artificial intelligence and blockchain, and all user information will be published on the blockchain's public ledger. Instead of being stored on servers, information on the internet would basically be recorded on the network, and any changes would be recorded on the blockchain, preventing data misuse and manipulation.</p><p>Essentially, Web3 will be 'decentralized' ? it cannot be controlled by regulations set up by governments or corporations and will only be under the ownership and control of the user, even if it is stored on a server belonging to the government or a corporation. In the words of the Not Boring founder Packy McCormick ? <em>"Web3 is the internet owned by the builders and users, orchestrated with tokens."</em></p><p>The fact that Web3 is decentralized makes <a href="https://techfastly.com/the-decentralized-finance-concept-defi-is-what/">Defi</a> one of the most prime use-cases of Web3. With this internet ecosystem coming into practice, deploying Defi, which uses cryptocurrencies to provide financial transactions sans intermediaries, would be easier. Defi can leverage Web3 to ease the processes such as receiving a loan, saving cryptocurrency, buying financial derivatives such as stocks, earning better interest than a bank, and money lending.</p><h2 id="disadvantages-of-a-conventional-finance-system">Disadvantages of a Conventional Finance System</h2><h3 id="lesser-interest-rates">Lesser interest rates</h3><p>Traditional banks offer conventionally low-interest rates on savings and other financial products, such as fixed deposits and recurring deposits, consequently leading to a low saving stimulus. One of the reasons for this is that traditional banks promote loans with commercial bank money on which they levy a relatively high interest, thereby generating a huge corpus of fiat money and earning substantial profits for the establishment rather than the masses. This may have also triggered substantial consumer mistrust over a period of time.</p><h3 id="high-commissions">High commissions</h3><p>A conventional finance system levies high commissions on high-interest loans. These fees are substantially at peak because of their high operating expenses, thereby making their products and services more expensive as opposed to those of other fintech establishments.</p><h3 id="physical-presence">Physical presence</h3><p>Unlike online banking, where conducting transactions can be a breeze, a conventional finance system requires you to be present in the establishment more often than not. Whether it's a transfer or something as simple as updating your statement, one is required to be physically present in the bank's office and within its business hours only, which proves to be a huge disadvantage.</p><p>'Banking hours' usually coincide with the work hours of many companies; thereby, employees mostly need a work permit to visit the bank. Also, for many, the distance to travel between the bank and workplace may be long and hectic, making it an additional complication for the user.</p><h3 id="operating-expenses">Operating expenses</h3><p>Traditional banks have many huge operating expenses. Apart from the standard administrative offices, they also have separate establishments for client service. One of the reasons for this is that having more in-person offices gives the bank more popularity.</p><p>Other than that, operating expenses include:</p><ul><li>Public service payments.</li><li>Payrolls of employees.</li><li>Paying heavy rents for the offices leased for banking operations.</li><li>Stationary expenses.</li><li>Security expenses.</li><li>Even payments for the material used for manufacturing debit and credit cards.</li></ul><h3 id="limited-atm-availability">Limited ATM availability</h3><p>Although teller machines are available on a large scale for most banks, the ATM network is not really very reliable all the time. For one, the ATM units may be largely available across one city but very scarce in another region. Many units have low availability of cash and massive limits on daily withdrawal. In many cases, they simply have momentary failures, making it problematic for users to rely on ATMs.</p><h3 id="slow-process">Slow process</h3><p>One of the principal cons of the conventional banking system, and one that has been around for a very long time, is its slow processing. Some of the processes carried out in banks and similar traditional institutions are extremely slow and long-lasting. There are numerous times when transactions carried out between 2 branches, or two different banks are incredibly time-consuming, despite being rather simple in reality. Many banks have weekend and holiday restrictions as well, making it extremely frustrating for the user.</p><h2 id="statistics-pertaining-to-the-current-status-of-defi-acceptance">Statistics Pertaining To The Current Status of Defi Acceptance</h2><p>The shortcomings of the traditional banking system have led to customers looking for alternative financial products with better interest rates and more flexibility. The Millennial Disruption Index, a 3-year study from Viacom Media Networks, found that 53% of millennials claim their banks don't offer anything different from other banks. An astonishing 71% said they prefer spending their time at a dentist appointment rather than listening to what banks say.</p><p>Although the practices of traditional banks have been in question for a long time, the 2008 economic crisis brought much to light pertaining to the disadvantages of the conventional finance system. The concept of alternative finance began to gain prominence from then on, although Defi gained acceptance after the Ethereum network went live in July 2015. In a nutshell, the generic interest for a transparent relationship between finance platforms and the public and the rising demand to explore non-traditional financial products has been fueling the growth of Web3. Defi is one of the strongest pillars of Web3, with crypto firms and blockchain companies rapidly looking out to create more Web3-based positions.</p><p>Defi pulse's total value locked in decentralized finance is USD 70.97 billion until January 2022. Experts claim that the decentralized finance industry presently represents only 0.1% of its maximum potential, and it is expected to depict substantial growth in the years ahead. Ethereum network transactions alone have grown 33 times since then to around 1.2 million per day presently, and many of these transactions have come from Defi services like Uniswap and lending and borrowing protocols like Compound, BondAppetit, and Aave. For the record, Uniswap enables more than USD 1 billion swaps per day, while the latter represents tens of billions in terms of market valuation.</p><p>Statista claims that country-wise, between April 2019 and June 2021, the US ranked first in terms of Defi acceptance, followed by Vietnam, Thailand, China, and the United Kingdom. A surprise entry at the sixth position was that of India, where Defi acceptance has grown by leaps and bounds since the last few years. According to an earlier Chainalysis report, India ranked second worldwide with respect to crypto adoption, behind Vietnam, but ahead of China, the US, and the UK. The same report also suggested that the adoption of cryptocurrency globally rose 880% on account of P2P platforms commanding cryptocurrency usage in emerging markets.</p><p>Another report by Chainalysis also states that large institutional transactions, especially above USD 10 million, held more than 60% of DeFi transactions in the first quarter of 2021 as opposed to &lt;50% for all cryptocurrency transactions. In essence, the adoption of cryptocurrency at the grassroots level seemed to be highest in emerging countries, while the adoption of DeFi was found to be strongest in high-income countries that had already been a part of cryptocurrency usage.</p><p>Given that the industry is still at a nascent stage, its acceptance among the masses is still a very long way to go. However, it is still managing to generate substantial waves worldwide ? even if cryptocurrency is banned. Take an example of China ? the country has cracked down on crypto, but this has only managed to increase the popularity and usage of DeFi. MetaMask users have grown ten times to 10 million in August 2021. And still, this apparently represents only a 5% penetration rate amongst crypto users worldwide, which in itself amounts to 221 million. A consensus drawn from these numbers is that general crypto users can prove to be a very massive market for DeFi in the years to come.</p><h2 id="defi-companies-and-their-initiatives-%E2%80%93-depicting-the-progress-of-defi-worldwide">Defi Companies and Their Initiatives ? Depicting the Progress of Defi Worldwide</h2><h3 id="nexus-mutual">Nexus Mutual</h3><p>Nexus Mutual is a decentralized platform that enables investors to obtain insurance coverage against smart contract exploits. Last year in December 2021, its token, WNXM, rose by 38% despite the current volatile condition of the cryptocurrency market. Experts surmise that the key reasons for WNXM's sudden price change include:</p><ul><li>A surging total value locked within the Nexus Mutual ecosystem.</li><li>A horde of new partnership agreements with the Nexus Mutual protocol.</li><li>The company's ability to provide coverage to victims of protocol exploits.</li></ul><p>In March 2021 for instance, Singapore-based cryptocurrency platform Hodlnaut inked a partnership with Nexus Mutual. The collaboration aimed at increasing Hodlnaut's maximum insurance capacity with the growth of the Nexus Mutual community-owned fund. In February 2021, Nexus Mutual received funding of USD 2.7 million; Collider Ventures led the round. During the last five months of 2020, Nexus witnessed its capital covering risks in the Defi ecosystem rise from USD 4 million to USD 100 million. This has made the company an indispensable pillar of DeFi transactions.</p><h3 id="compound">Compound</h3><p>Compound (COMP) is a cryptocurrency (Ethereum) token enabling community governance of the Compound protocol, which is a series of decentralized interest rate markets allowing users to supply and borrow Ethereum tokens at different interest rates. It is said to be one of the pioneers of the liquidity pool concept, which pushed the Defi boom of 2020. Ironically, it operates very much like a bank, where people deposit a crypto coin and receive interest on the same.</p><p>Recently in December 2021, crypto exchange company Coinbase and Compound signed a deal wherein the latter claimed it is opening up decentralized finance (Defi) to customers wanting high yields from borrowing and lending crypto assets. It will start with DAI, a stable coin cryptocurrency having a value nearly equal to that of the US dollar, and Coinbase's customers' DAI will then be deposited with Compound.</p><h3 id="metamask">Metamask</h3><p>MetaMask is a Web3 browser plugin with over 1 million active users monthly. It is an Ethereum wallet where users can store Ether and other ERC-20 tokens. It is also popular for interacting with decentralized applications and has been creating a storm in the Defi industry. Just a little over a year ago, in December 2020, ConsenSys announced a new offering from MetaMask that aims to provide traders, custodians, and cryptocurrency funds with state-of-the-art features and controls to connect Defi protocols and applications.</p><p>MetaMask Mobile, as the offering is called, makes it easier to use Defi applications. There's a new token swaps feature here that helps better execute digital assets and delivers an overall simple experience. MetaMask's Version 8 has already brought new levels of privacy to Web3, thereby enabling users to create a new account just for that site or to select one or more accounts they can associate with a website.</p><h3 id="avalanche">Avalanche</h3><p>Avalanche is a popular U.S.-based digital exchange platform. AVAX, the Layer-1 blockchain, is quickly becoming a strong competitor for Ethereum. In a bid to be more energy-conscious, Avalanche deploys the PoS (proof of Stake) Protocol to make decentralization and scalability easy. It has been working to solve what is called the Blockchain trilemma, compared to the slower PoW Protocol that Ethereum is moving onto.</p><p>Despite the recent cryptocurrency crisis, Avalanche recorded an astounding 76% growth from its January low of USD 53. In November 2021, Avalanche's price hit a record high of USD 110. This sudden spurt may be on account of increasing Defi growth on the Avalanche ecosystem, claim experts. Recently in February 2022, Valour Inc., a subsidiary of Defi Technologies, obtained approval from the Nordic Growth Market stock exchange to list Valour Terra (LUNA) SEK and Valour Avalanche (AVAX) SEK ? two new ETPs (exchange-traded products). Both these will enable institutional and retail investors to gain exposure to the native tokens of the Avalanche and Terra networks.</p><h3 id="concluding-thoughts">Concluding Thoughts</h3><p>There is no doubt that Defi has a major place in the global economic system of the future. It challenges the conventional financial system by eliminating intermediaries and empowering the public, totally unbundling finance as we know it. The demand for Web3 will rise in the years to come, given its benefits such as easy implementation, fewer computational resources, and higher performance, inadvertently increasing the deployment of Defi. With the generation of Stablecoins, blockchains, NFTs, and more, Defi is only set to depict commendable growth in 2022 and beyond.</p><p>It does have limitations, certainly. There is no major consumer protection plan in place, neither is there any security against hackers. Defi lending transactions also require collateral equal to 100% of the loan value. Despite that Defi apps are changing the landscape of the finance system with the help of the blockchain and other revolutionary technologies. Defi is certainly slated to be the future of finance and is here to stay as it manages to replace error-prone legacy systems and innovate newer trading opportunities.</p>

Saipriya Iyer

How will decentralized finance (DeFi) and web 3.0 impact the world's financial infrastructure? Read on to find out how DeFi is changing the way we see traditional banking.

The Impact of DeFi on Finance Industry | Techfastly

A Synopsis of How Web3 is Revolutionizing the Finance Industry and Pushing the Acceptance of DeFi

<div><h4 style="margin: 0cm 0cm 8pt; line-height: 22px;"><span lang="EN-US" style="line-height: 24px;">Introduction</span></h4><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0);"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">Current crypto market trends point to DeFi and NFTs as the two most important constituents. For the time being, the two most common uses of blockchain technology are decentralized finance and non-fungible tokens. Non-fungible tokens enable asset tokenization, while DeFi provides decentralized access to financial services. However, it is critical to consider how NFT DeFi may be used to an enterprise's advantage.<o:p></o:p></span></p><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0); text-align: justify;"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">Conversely, it is fair to ask how NFTs will evolve as a DeFi instrument in the future. NFTs are sometimes dismissed as little more than digital collectibles or works of art that command exorbitant prices at auction thanks to the media frenzy around them. Non-fungible coins, on the other hand, can make critical long-term contributions to the expansion of decentralized finance. In the following, we will talk about getting the most benefit from DeFi's NFT implementation.</span></p><h4 style="margin: 0cm 0cm 8pt; line-height: 22px;"><span lang="EN-US" style="line-height: 24px;">Do you know what NFTs are and how DeFi works?</span></h4><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0);"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">When it comes to non-fungible tokens, they are merely another means to store the value that's not interchangeable. NFTs' value is tied to a specific asset, like gold or a dollar note. The market and individual estimates of the NFT's worth fluctuate considerably. Non-fungible tokens cannot be readily replaced or replicated, meaning that no two NFTs are identical. Decentralized finance, often known as DeFi, is a type of blockchain-based financial system. The growth of the DeFi ecosystem is aided by several public blockchain networks, such as the Ethereum blockchain. By utilizing built-in technologies like cryptocurrencies, oracles, and intelligent contracts, DeFi paves the way for decentralized financial management. The definitions of NFT and DeFi make it evident that a connection may be found between the two terms.<o:p></o:p></span></p><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0); text-align: justify;"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">In other words, how do you begin to uncover the link between DeFi and NFT? NFT offers a unique manner of holding value, whereas DeFi gives an infrastructure for unlocking that value. This is evident from their definitions.</span></p><h4 style="margin: 0cm 0cm 8pt; line-height: 22px;"><span lang="EN-US" style="line-height: 24px;">What Is the Best Way to Use NFTs to Store Value?</span></h4><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0);"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">Knowing what kinds of assets may be tokenized is necessary to comprehend the potential relationship between NFT and decentralized finance. NFTs originally appeared in the form of tokens having an actual value proposition, such as real estate. Investing in real estate was difficult because of the illiquidity and the amount of paperwork required. Using virtual tokens to represent assets on the blockchain will make it easier to indicate ownership and more flexible to transfer them. The use of NFTs may also aid in unlocking and mobilizing wealth when doing so is challenging. Musicians, for example, might provide NFTs as a way to reward fans for taking part in interactive sessions with them. It is vital to consider the value of the offering while evaluating its worth. Because NFTs are a good deal, they have to be priced accordingly.</span></p><h4 style="margin: 0cm 0cm 8pt; line-height: 22px;"><span lang="EN-US" style="line-height: 24px;">What Value Does DeFi Unlock?</span></h4><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0);"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">Further research into the concept of DeFi may yield a promising hypothesis about the basis for the application of NFT in DeFi. You should know that DeFi can operate with a wide range of financial solutions, instruments, and procedures, which is the first thing you should know. NFTs would essentially be added to DeFi's already extensive portfolio as yet another investment opportunity. However, it is critical to identify which part of the DeFi value chain would be most affected by the introduction of NFTs.<o:p></o:p></span></p><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0); text-align: justify;"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">NFTs are essential assets with a high intrinsic value. As a result, they might provide the owner the opportunity to see their asset's value rise or generate money from it. DeFi may be able to help unleash the potential of NFTs. How?</span><span style="font-family: &quot;Times New Roman&quot;, serif; font-size: 12pt; background-color: rgb(249 249 252/var(--tw-bg-opacity));">&nbsp;</span></p><h4 style="margin: 0cm 0cm 8pt; line-height: 22px;"><span lang="EN-US" style="line-height: 24px;">The introduction of NFTs into the DeFi Ecosystem is significant.</span></h4><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0); text-align: justify;"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">Decentralized finance, often known as DeFi, rapidly blends with NFTs and NFT marketplaces in architectural patterns. Many DeFi initiatives, such as Rarible, provide an NFT marketplace geared primarily toward content producers. It has established the required procedures for regulation under a Decentralized Autonomous Organization and offers a governance token known as RARI (DAO). Platform improvements might be voted on by RARI token holders and those that actively moderate the marketplace, such as producers and collectors. An NFT index has also been provided by RARI, which acts as a portfolio for NFTs and aids collectors in viewing and selecting artworks for investment.</span><b style="font-size: 11pt; background-color: rgb(249 249 252/var(--tw-bg-opacity));"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">&nbsp;</span></b></p><h4 style="margin: 0cm 0cm 8pt; line-height: 22px;"><span lang="EN-US" style="line-height: 24px;">Ways for DeFi in NFT:</span></h4><h5 style="margin: 0cm 0cm 8pt; line-height: 22px;"><span lang="EN-US" style="line-height: 24px;">Using Non-Financial Transactions in Decentralized Financial Services</span></h5><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0);"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">With NFTs' capacity to reflect the commercialization of digital items and services, a decentralized NFT finance combination is immediately conceivable. The DeFi industry's use of NFTs has grown in recent years. Ethereum, for example, has made use of ERC-20 tokens to provide a means of representing digital assets. Digital art ownership documents such as NFTs may readily be created using this technology. Creators are increasingly turning to Ethereum as a means of distributing their work and interacting with a supportive online community of art buyers. NFTs can provide great value in the DeFi sector by allowing flexible proof of ownership. Let us have a look at the many ways in which NFT may be used in DeFi.</span></p><h5 style="margin: 0cm 0cm 8pt; line-height: 22px;"><span lang="EN-US" style="line-height: 24px;">How to Deal with the Collateralization Issue</span></h5><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0); text-align: justify;"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">The capacity to unlock value is one of the essential features of the NFT DeFi combo. While this is true, precise procedures for assessing the worth of NFTs might be challenging to come up with. The usage of NFTs, on the other hand, might assist the lender in determining the DeFi collateralization value. How? The borrower will submit a loan request with the NFT, and the NFT will act as security for the loan. The lender will look at the loan amount and the collateralized NFT, considering several criteria, including the owner's price tag, a secondary market value, and estimates.</span><b style="font-size: 11pt; background-color: rgb(249 249 252/var(--tw-bg-opacity));"><i><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">&nbsp;</span></i></b></p><h5 style="margin: 0cm 0cm 8pt; line-height: 22px;"><span lang="EN-US" style="line-height: 24px;">The collateralization issue.</span></h5><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0);"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">The combination of NFT and DeFi may make it easier to resolve the collateralization issue. It is also critical to keep an eye out for market liquidity problems. Artwork and collectibles have a wide range of monetary values. Consider, for example, a picture that's about $1 million in price. Only if someone is willing to pay for it will the painting's price have any real meaning. The NFT decentralized financial association may readily resolve collateralization for artwork. Collateralizing NFT art and collectibles for DeFi financing may be the best option here.</span></p><h4 style="margin: 0cm 0cm 8pt; line-height: 22px;"><span lang="EN-US" style="line-height: 24px;">Ownership of NFTs and the Effect on DeFi</span></h4><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0);"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">Using DeFi platforms in conjunction with NFTs in the music business indicates that the world of art is undergoing a revolutionary transformation. In addition, NFTs have played a critical role in helping artists to retain ownership rights and profit. You may earn a steady percentage of your work's streamed earnings, or you can sell it for its resale value to another party. A practical collateral alternative is to keep track of verifiable revenues from non-traditional means (NFTs). The usage of NFT in DeFi may also make it feasible to obtain under-collateralized loans more quickly. Art and collectibles commercialization using NFTs has become a central theme in the NFT hype story. NFTs, on the other hand, have the potential to be more effective tools for addressing issues such as royalty sharing, licensing, and ownership of copyright.<o:p></o:p></span></p><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0); text-align: justify;"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">In the actual world, traditional art has traditionally been used as collateral. As a result, incorporating DeFi NFTs into the mix appears to be a logical move forward. NFTs may help the DeFi industry by addressing liquidity concerns and allowing tokenization to occur. Using tokenization may make it feasible to create an illiquid asset in a short period with ease and flexibility.</span></p><h4 style="margin: 0cm 0cm 8pt; line-height: 22px;"><span lang="EN-US" style="line-height: 24px;">Conclusion</span></h4><p class="MsoNormal" style="margin: 0cm 0cm 8pt; line-height: 22px; font-size: 11pt; font-family: Calibri, sans-serif; color: rgb(0, 0, 0); text-align: justify;"><span lang="EN-US" style="font-size: 12pt; line-height: 24px; font-family: &quot;Times New Roman&quot;, serif;">The verifiability of ownership is one of the most critical aspects of using NFT and DeFi together. For NFT holders, the DeFi sector opens up due to the simplicity of establishing ownership of their tokens. The most crucial thing to remember is that NFT may assign value to practically anything. On the other side, DeFi assists in releasing an asset's true worth. Loans secured by NFTs are progressively becoming more common, and the expansion of NFT DeFi might mean more innovation in the future. DeFi and NFTs might change the way we think about assets, tokens, and financial services due to users' increasing quantity and depth.<o:p></o:p></span></p></div>

REHAN HUSAIN

DeFi: A Growing Arm Behind NFT

<p>Cryptocurrencies have made a splash these days and this trillion-dollar industry has also caused financial disruption around the world.</p><p>Cryptocurrencies have a remarkable history from the 1980s to the present day. Bitcoin, the first cryptocurrency, has seen spectacular growth, yet not much adoption by financial services is due to its inherent lack of stability.</p><p>Mainstream institutions stay away from Bitcoin because of the significant price volatility. And that's why it's a poor asset for a perfect investment plan.</p><p>Change is the hallmark of crypto space. Decentralized finance (DeFi) is a current trend. Of course, if you're learning DeFi for the first time, you'll be pretty excited by the time we lead you on.</p><h3 id="an-overview-of-decentralized-finance-defi">An Overview of Decentralized Finance (DeFi)</h3><p>DeFi is a short-term acronym for decentralized finance for ongoing projects and applications in the public blockchain sector that has disrupted the traditional financial world.</p><p>Let us look a little further, DeFi refers to financial applications built on blockchain technologies and often brings the role of smart contracts. What are smart contracts? They are automatic enforceable agreements to avoid intermediaries and simply require an internet connection to be accessible.</p><p>Defining Financial Innovation, or DeFi, as a set of applications and peer-to-peer protocols developed on decentralized blockchain networks that allows lending, borrowing, and trading of financial tools with no access rights required. </p><p>DeFi apps are currently built using the Ethereum network, but another generation of public networks is emerging that can provide superior speed, security, scalability, and cost-efficiency.</p><h3 id="smart-contracts-a-role-to-play">Smart Contracts: A Role to Play</h3><p>With <a href="https://techfastly.com/auditing-your-defi-smart-contracts-is-important/">smart contracts</a>, multiple parties can interact without the need for a centralized intermediary through Turing-complete programming languages. The ability of blockchains to leverage smart contracts has made them ideal for developing financial applications.</p><h3 id="defis-historyhow-did-it-start">DeFi's History - How Did It Start?</h3><p>Bartering was the way humans exchanged goods and services in the beginning, but, as humans evolved, economies evolved: We invented currency to facilitate the exchange of goods and services. Coins brought innovations and improved economies, but progress has a price.</p><p>Central authorities have historically issued currencies to support our economies, endowing them with more power as people grew to trust them. The centralized authorities have however occasionally broken trust, leading to questions about their ability to administer the money. DeFi was created with the aim of creating an open financial system that minimizes the reliance on centralized authority.</p><p>DeFi's genesis is claimed to have begun with the launch of Bitcoin in 2009, which was the first p2p digital money built on top of the blockchain. The introduction of blockchain technology into the legacy financial world using Bitcoin was an essential next step towards decentralizing legacy financial systems. Ethereum and, in particular, smart contracts, made this all possible in 2015. </p><p>In the financial industry, Ethereum technology was the first 2nd generation blockchain to capitalize on the potential of this technology within the financial sector. It encouraged businesses and enterprises to build and deploy projects that formed the ecosystem of DeFi.</p><p>With DeFi, there was the opportunity to establish a transparent, robust and independent financial system. The pivotal year for financial applications took place in 2017, when projects began facilitating more features than only money transfers.</p><h3 id="finance-under-centralized-control-challenges">Finance Under Centralized Control: Challenges</h3><p>It is through financial markets that great ideas can be developed and society can prosper. These markets are still dominated by a centralized power. In the current financial system, people ensure their assets are held by intermediaries, such as banks and financial institutions. In this way, risk and control remain at the centre of these systems.</p><p>The 2008 financial crisis demonstrated that bankers and institutions failed to see the risks in the market in the past. The centralization of money leads to the accumulation of risk at the centre, which poses a danger to the system as a whole.</p><p>Initially designed to give individuals full control over their assets, Bitcoin and early cryptocurrency weren't decentralized until they were used for issuance and storage. Up until the advent of smart contracts, it was difficult to provide access to a broader set of financial instruments.</p><h3 id="defi-protocols">DeFi Protocols</h3><p>DeFi has become a full-fledged ecosystem of protocols and applications that deliver value to millions of users. DeFi ecosystems have been securing over $30 billion in assets, making it one of the fastest-growing segments within the public blockchain space.</p><h3 id="lending-and-borrowing-through-defi">Lending and Borrowing Through DeFi</h3><p>The introduction of DeFi allowed lending and borrowing to take on a new direction. A decentralized lending model often referred to as 'Open Finance', offered crypto holders the opportunity to gain annual returns on their loans. In decentralized borrowing, individual borrowers could borrow money at a set interest rate.</p><p>Lending and borrowing are intended to enhance financial service use cases while meeting the needs of the cryptocurrency community.</p><h3 id="decentralized-exchanges">Decentralized Exchanges</h3><p>The Decentralized Exchange (DEx) is one of the core features of DeFi, locking the maximum amount of capital compared to other DeFi protocols. DExs allow users to exchange tokens with other assets, without a centralized intermediary. A centralized exchange (traditional exchange) offers similar options, but the investments available depend on its discretion and costs. One of the negative aspects of CExs, and addressed by DExs, is the extra fee charged on each transaction.</p><h3 id="what-the-future-holds-for-defi">What the Future Holds for DeFi</h3><p>A revolution is taking place in the functionality of money as a result of the introduction of distributed ledger technology. It is the first time in history that a global financial system is being shaped by a worldwide population. The decentralized finance world is actively created by everyone who can participate in the governance of DeFi protocols.</p><p>In spite of some inevitable obstacles that come with operating on the bleeding edge of innovation, the world of decentralized finance is on the path to prosperity. It's hard to predict how this space will develop over time once the power to build financial services democratizes. However, when Defi and fintech intersect and integrate, we'll reach a tipping point where fledgling financial technology becomes a component of a new financial system. One that embodies the ideals of speed, security, accessibility, and egalitarianism.</p>

The Decentralized Finance Concept (Defi): What Is It?

<h3 id="whats-the-buzz-all-about">What's the Buzz All About?</h3><p>Hackers stole roughly $600 million in bitcoin via a technology known as PolyNetwork, which allows users to trade tokens across various blockchains.</p><p>In recent years, hackers stole cryptocurrency worth more than $600 million from Poly Network, a decentralized finance network in one of the greatest crypto heists. Surprisingly, the person who stole the money returned almost a third of the stolen assets to the government.</p><p>Several tweets from Poly Network, a company that uses digital assets for lending and other financial activities, revealed the theft on Tuesday morning. It was estimated that the stolen coins were valued at over $610 million at the time by blockchain security startup SlowMist. These included ether and tokens backed by bitcoin, tether, a coin meant to replicate the value of the U.S. dollar, and Shiba Inu, a novelty cryptocurrency based on the dogecoin funny cryptocurrency and named after a Shiba Inu dog breed.</p><p>As of Wednesday, 11<sup>th</sup> August 2021, Poly Network reported that assets worth $260 million had been returned to the company. Purported hackers stated that they always intended to repay the cash in a series of long question-and-answer posts on their blockchain account used to steal the funds.</p><p>The attack has harmed tens of thousands of users, PolyNetwork claimed in a letter published on Twitter. The attacker cannot access it because Tether's issuer has frozen about $33 million of the Tether stable coin that was part of the heist.</p><p>In an email, Tom Robinson, co-founder of Elliptic, said that "the hacker has begun to use decentralized exchanges to transfer the stolen funds into other assets, including stable coins." In principle, stable coins may be taken by their issuers and restored to their owners. As for the stolen Ether, this isn't possible. However, if the money is moved to an exchange to be cashed out, it may be conceivable for authorities to take them.</p><h3 id="attack-on-defi">Attack on DeFi</h3><p>In recent years, DeFi has been a popular target for hackers. According to cryptocurrency compliance provider CipherTrace, hacks connected to DeFi totalled $361 million from January to July. Fraud with DeFi is also on the rise. Fraud with DeFi is also on the rise. 54% of the entire crypto fraud volume was attributed to it in the year's first seven months.</p><p>The fact that DeFi applications have attracted billions of dollars in investment capital means that they've become frequent targets of assaults. A crypto security company reports that hacks connected to DeFi accounted for more than 60% of the overall volume of crypto assaults this year, up from 20% in 2020. To date, the $156 million derived from DeFi-related breaches in the first five months of 2021 has overtaken all of 2020s $129 million derived from DeFi-related attacks.</p><p><em>Bitcoin, Ethereum, and other crypto-currencies are built on a distributed ledger called a blockchain. As a result, each digital coin has its own blockchain, which makes them all unique. According to Poly Network, these different blockchains may be made to interact.</em></p><p><em>The Poly Network is a decentralized finance network that uses blockchain technology to operate. It refers to a wide range of financial applications based on blockchain technology that aims to eliminate intermediaries, such as brokerage firms and exchanges. This is why it's called decentralization.</em></p><h3 id="hackers-returning-the-funds">Hackers Returning the Funds</h3><p>Strangely enough, hackers began returning some of the funds they took on Wednesday. "We are ready to repay" the cash, they said in a message hidden in a bitcoin transaction that was delivered to Poly Network. For the money to be transmitted to three crypto addresses, DeFi's network demanded it is paid to three crypto addresses.</p><p>More than $4.8 million had been refunded to Poly Network addresses as of 7 a.m. London time. Approximately $258 million had been sent back by 11<sup>th</sup> August 2021.</p><p>In an email, Elliptic?s chief scientist, Tom Robinson, said: "I think this shows that even if you can steal crypto-assets, laundering them and paying them out is incredibly difficult because of the blockchain's transparency and the use of blockchain analytics."</p><p>It was determined in this situation that returning the stolen assets would be the safest choice. Following their theft of funds, hackers began transferring the funds via bitcoin addresses. Over $610 million in bitcoin was moved to three different addresses, according to SlowMist's researchers.</p><p>After "grabbing the attacker's mailbox, IP address, and device fingerprints," SlowMist stated in a tweet that its experts were "following probable identification evidence connected to the Poly Network attacker." A long-planned and well-executed heist, according to the experts, is likely to have occurred. "Blacklist tokens" coming from the addresses related to the hackers, Poly Network advised cryptocurrency exchanges in a blog post.</p>

DeFi Platform Poly Network Hackers Robbed For $600 Million

<p>Imagine a future where cryptocurrency and decentralized finance become the norm, and banks become an option. Although this isn't happening anytime soon, DeFi is catching like wildfire. The total value locked in DeFi increased five-fold in just six months and stands at over 4 billion dollars. I agree that this is a drop in the ocean compared to the trillion-dollar traditional banking industry. Still, given the pace at which DeFi is moving, it'll engulf the banking industry.</p><h3 id="but-what-exactly-is-defi">But what exactly is DeFi?</h3><p>DeFi stands for Decentralized Finance and is often referred to as the Open Finance Movement. Decentralized finance is built over smart contracts, protocols, digital assets and are accessed using a dApp (Decentralized application). Consider it a futuristic system of every traditional financial service you use today - loans, trading, insurance, and more. It runs on a trustless, permissionless, and open blockchain where the control is not under any individual entity. The majority of DeFi applications now are based on lending and borrowing with impressive interest rates that sometimes touch double-digit figures (Sounds way better than the negligible interest rates banks provide, doesn't it?)</p><p>These applications run on smart contracts that are programs that execute when certain conditions are met. The code is written and released, and from then on, there is no central power handling your assets. Everything is automated with almost no human intervention (although developers deploy upgrades or bug fixes). Most of the DeFi applications are run over the Ethereum network. Even though there is still a scalability problem, it is expected to improve vastly with the release of Ethereum 2.0 as it is moving to the Proof-of-Stake system from the current Proof-of-work mechanism.</p><h3 id="traditional-finance-vs-decentralized-finance">Traditional Finance vs. Decentralized Finance</h3><p>The most 'in-your-face' difference is that an organization runs banks, and they are responsible for the money you deposit in the bank. They lend it out as loans, or they charge you for their services. DeFi is fighting against this to bring about a decentralized system where people would no longer need to rely on a third party, like banks, for their financial needs. With DeFi, people can transfer money across countries (depends upon the regulations). This is what DeFi is aiming at, a globalized peer-to-peer financial system. People that aren't in the crypto space often assume cryptocurrency is volatile and highly unstable, and it is not safe enough to use them as a global currency. This is where stablecoins step in. Stablecoins are a cryptocurrency too, but they are pegged to the value of the US dollar. Such coins are protected against the instability of the cryptocurrency market. Tether (USDT) and MakerDAO (DAI) coins are some of the critical stablecoins.</p><p>Customer data must be protected at all costs, and that is something legacy finance cannot entirely guarantee since it is prone to hacks due to its centralized nature. In a blockchain, all the data is encrypted and is publicly available to validation. This does not mean that your data is out in the wild. Unlike banks, DeFi does not require you to identify yourself. The entire system supports anonymity and yet provides security as no one will be able to alter data. In 2019, Capital One fell prey to a hacking attack that exposed over 100 million customers' personal information. Since DeFi is entirely transparent and anonymous, customers will feel much safer here. The anonymity might also open doors for money-laundering, so it will be challenging to come up with regulations.</p><p>The Venezuela Hyperinflation is something so devastating that it almost rendered the currency worthless. A steep drop in oil prices and poor government policies led to the mass printing of new currency, which destroyed the economy and shot up inflation to over 1,000,000%. This was entirely caused by humans. Blockchain came to the rescue when people from Venezuela started sending funds as cryptocurrency to their friends and relatives in other countries. Such a problem can never occur in DeFi since new coins are minted based on the protocol and not by choice.</p><p>MakerDAO is currently the darling of the DeFi world and has 1.09 billion dollars locked in its system. MakerDAO is a decentralized organization that allows the lending and borrowing of cryptocurrency and is built over the Ethereum network. It locks ETH as collateral in Collateralized Debt Position(CDP) and lends the DAI stablecoin with an attractive interest rate with complete security since a smart contract manages all this instead of a central authority. It is smart and also dangerous in a way that, in order to maintain the stable value of the DAI token, the collateral must always be at least equal to the amount of DAI borrowed. If the collateral value falls below 150%, a liquidation process is automatically initiated by the smart contract, and anyone in the network acquires the power to repay the debt. These people aren't so kind as to repay someone else's debt. They get 13% of the total debt taken from the initial borrower's locked funds. All this can be avoided by the borrower controlling the loan amount and the regularity of repayments. The liquidation is solely done to maintain the stable value of the DAI token. This way, it can remain a global currency that anyone can send and receive around the world. A lot of other players are catching up in this space, including Compound and Synthetix.</p><h3 id="what-s-next-for-defi">What's next for DeFi?</h3><p>DeFi will not replace traditional finance overnight, it's just taking its baby steps, and we have to wait until it can run. It might either overthrow traditional finance or coexist with it. The future where these two switch roles and traditional finance is looked upon as a mere option is inevitable.</p><p>One of the significant challenges DeFi will face is regulation, and it's interesting to see how it will tackle this problem. COVID has turned the world upside down, and DeFi has taken advantage of it. The past few months have seen a surge in the adoption of Decentralized Finance. Mainstream companies are paying attention to DeFi and are working hard to tackle it, but DeFi seems to be growing strong.</p><p>Cryptocurrencies are already being accepted as forms of payment in various stores and organizations around the world. DeFi should earn the trust of users to enter mainstream adoption. The tech has developed significantly, and developers are working on providing a better user interface to allow even grandmas to use it. The crypto community has dubbed 2020 the year of the "DeFi Renaissance." The topic of decentralization is, itself, pretty restricted to the tech community, and it has to cross that border for mass adoption. DeFi isn't going to take over the world in the next 4 or 5 years, but it's taking one step at a time, and each step is a giant one.</p>

Ashwin Kumar R

DeFi is booming - Banking to be a thing of the past?

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