Despite being in existence for four years, crypto institutions only started adopting DeFi (decentralized finance) recently. In the last quarter (Q3 2021), more organizations joined the train.
Ethereum and MetaMask software provider, ConsenSys Q3 report gives key insights into the requirements that need to be in place before crypto institutions adopt DeFi. They also give insights into how they’re navigating this path.
Importance of Custodians for Crypto Institutions
Among the factors in the report, Custodians are key to risk management. Besides, they play a crucial role in market makers, trading desks, and crypto funds’ ability to leverage DeFi by helping them fulfill operational and security requirements.
Looking at specifics, Custodians are:
- Similar to guardians, they focus on safeguarding users’ tokens and private keys.
- They also authorize and facilitate cryptocurrency payments for users. Notably, this is because the institutional requirements ensure private keys are on Multi-Party Computation (MPCs) or Hardware Security Modules (HSMs) custody tech and qualified custodians.
In fact, MetaMask is one of the few wallets that works with Custodians. The ConsenSys Q3 report shows also shows MetaMask’s work involving Custodians.
Per the report, MetaMask is collaborating with some Custody platforms such as Cactus Custody, BitGo, and Qredo. Besides, they are working with these custodians to help investors scale the necessary institutional requirements. Thus, helping them get full access to DeFi opportunities.
Looking at each of these collaborations in detail, we can see that:
- Cactus Custody is a third-party institutional custody service. It’ll offer miners, crypto funds, and projects, features like DeFi connection, cold and warm storage, and enterprise crypto management functions.
- BitGo has a multi-signature wallet and offers its services solely to institutional clients.
- Qredo utilizes Multi-Party Computation (MPC) which reportedly makes it safer than its competitors. It’s also useful to owners of low-capital crypto funds, as well as, high-volume asset managers.
Other Notable Factors to Consider Before Engaging in DeFi
Aside from custody services, we’ll also look at some other important factors that crypto institutions need to consider before engaging in DeFi.
- Compliance: the DeFi sector is still nascent and exposed to risks. Thus, regulators need to understand the sector to be able to create a framework that protects investors. At the moment, there are tools that detect ‘Know Your Transaction’ (KYT) risks, but this isn’t enough. There’s a need for tools that ensure DeFi also has risk management in it.
- Access: the ways to access DeFi can be indirect via a centralized cryptocurrency exchange, which offers only a limited amount of tokens. It can also be directly via a DeFi wallet, which gives access to several DeFi tokens.
- Monitoring trades: For DeFi tokens and protocols, the direct access option is tough to use in monitoring APYs, yields, and risk management of positions. But, the MetaMask Institutional is among the DeFi projects that help in monitoring these areas.
Outlook for The Coming Year
The DeFi sector is on an upward trend, and this is expected to continue with investors seeing its ability to transform the financial services and institutional investment sector.
ConsenSys is heavily invested in MetaMask Institutional, which has top-notch functions and serves more than 10 million users every month. Notably, the number of users will increase in the coming year and it’ll integrate more DeFi dApp, creating more features.
In addition, an issue confronting the blockchain and cryptocurrency sector is auditing, and confirmation of results from operations. DeFi also falls into this, for some applications, there isn’t a control to audit. Thus, making it an area to improve as well-thinking investors will take a look at consistent and comparable data.
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