Is the market being put on a leash?


The DeFi market is gradually coming back to operating temperature. The first regulatory approaches could meanwhile prepare the next wave of adoption.

It has been a month since the crypto market crash, but the after-effects are still widely visible. The ten largest DeFi coins in terms of market capitalization are struggling on a weekly basis with, in some cases, significant losses in the double-digit percentage range. The range extends from a 14 percent discount at Maker (MKR) to almost 30 percent at Chainlink (LINK). A recovery looks different, at least at the price level.

Because through the macro glasses, the situation looks a little more relaxed. The Total Value Locked (TVL), i.e. the entire assets managed by DeFi protocols, has increased by almost ten percent compared to the previous week. A good 40 billion US dollars are still missing before the record mark. After all, the TVL has made up $ 30 billion since the low three weeks ago. With currently almost 120 billion US dollars, the TVL is again at a strong level.

At the regulatory level, the first signs of the course for the still hesitant DeFi adoption are becoming apparent. The World Economic Forum (WEF) published a DeFi toolkit this week, which is intended to assist political decision-makers in risk-opportunity assessment and regulatory measures.

That makes specific suggestions White paper, in which the Wharton School of the University of Pennsylvania was involved, but not. Rather, it illuminates the opportunities, but also the dangers of decentralized finance. The toolkit therefore serves more as food for thought for authorities to face the open questions of the DeFi ecosystem and to formulate sensible regulatory solutions.

The toolkit has already found its first customer. Jehudi Castro Sierra, Consultant for Digital Transformation in Colombia, explainedthat his country will be the first to use the toolkit to develop policies and regulations related to DeFi in Latin America.


Will DeFi manage self-regulation?

The Swiss venture capitalist Blockchain Valley Ventures (BVV) also attests to the area of ​​regulation in a current one DeFi Status Quo Report an increasing importance, especially in the connection of institutional investors: inside. Regulation is “a key challenge, as DeFi is not really on the radar of regulators,” the report said. Initial concepts, however, indicated increased protection for investors. Interestingly, the report focuses less on political and more on technical regulation, i.e. the programming of secure smart contracts.

Since regulation and protection can be embedded in the code and functionality can be audited, there could be a paradigm shift in terms of regulation and consumer protection,

explains BVV partner Sebastian Markowsky to BTC-ECHO. In this way, “self-regulation could develop and become the new normal”.

Ripple introduces sidechains

Ripple is also looking to join forces with the DeFi market. So far, the XRP Ledger has not supported smart contracts. But that should change via sidechains, as chief developer David Schwartz announced. Developers should be able to create sidechains with the help of a federator and connect them to the main ledger. In this way, different tokens can also be sent between blockchain networks.

The programming should be easy to use. In addition, developers can create their own protocol rules. For example, sidechains could be designed in which there are no transaction fees.