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ARE THESE THE MOST UNDERVALUED DEFI PROJECTS?

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This year has undoubtedly been one of the most bullish years on record for cryptocurrencies.

Bitcoin (BTC), Ethereum (ETH) and numerous other large cap cryptocurrencies achieved their all-time highest values amidst rising institutional interest from the likes of PayPal, Tesla, and BNY Mellon. This has sent the market into a buying frenzy, as savvy investors look to spot the most undervalued crypto assets before they begin exploding in value.

When it comes to assessing the potential value of a project, one simple metric stands out above all else — market capitalization. Early-stage projects with significant potential but a relatively low market capitalization represent the most potentially lucrative opportunities, since they have the potential to achieve considerable growth.

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But it takes a discerning eye to separate the hype jobs from the projects with genuine prospects. Here, we take a look at three projects we think have the fundamentals, community, and products necessary to explode in the near future.

PROPHECY ($PRY)

Prophecy is an interesting one. Like Bitcoin, it’s built to provide an entirely new financial ecosystem that resolves some of the biggest gripes with traditional money. It’s also created by an ethical anonymous team, that puts its community at the forefront while operating in the background to build a suite of Defi financial products that empower its users.

Unlike many other blockchain protocols which are typically just a copy and paste of something else — with a few extra features slapped on top. Prophecy is an entirely original platform built around a novel consensus mechanism known as Proof-of-Committed Decay (or PoCD) — which essentially stimulates the Prophecy economy to remain as liquid as possible while ensuring that the supply of PRY tokens is closely balanced to demand to prevent loss of purchasing power.

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But here’s where it gets even more interesting. Prophecy isn’t just providing a sound monetary unit in the PRY token, or a next-generation economic protocol, it’s also building an entire range of products that leverage this technology to provide a range of use-cases to PRY holders. The first of these is already live now — ‘Prophet Pools’ — which essentially yield pools that accelerate the earning process to a matter of hours or days.

In total, the team behind Prophecy plans to release more than eight different financial solutions in the next year alone — indicating big things may be in store for this project. And with a tiny market capitalization of just under $2 million, its strong fundamentals and the rapid pace of development make it one worth watching.

EASYFI ($EASY)

If you’ve been involved in the cryptocurrency space to any major capacity in the last year or so, then you’re likely aware that decentralized lending and borrowing platforms are extraordinarily popular.

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They’re frequently used by DeFi traders looking to leverage their long-term positions and borrowers aiming to extract liquidity from their assets. On top of this, lenders can use them to earn a safe return on their assets.

But these open lending platforms have been largely limited by two major problems: they generally couldn’t facilitate undercollateralized loans and frequently suffer from the high gas costs on the Ethereum blockchain. That is, until now.

The modern decentralized lending platform EasyFi resolves both of these challenges by leveraging Polygon’s (formerly Matic Network’s) layer 2 technology to reduce transaction fees to a bare minimum while enabling borrowers to take out undercollateralized loans thanks to its TrustScore integration.

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It also incorporates a novel incentive mechanism, which sees users rewarded with EASY tokens for using the platform. These EASY tokens can then be staked to earn MATIC tokens, giving users two levels of rewards just for taking out or providing low-interest loans.

With a small market cap of around $24 million, EasyFi is just a fraction of the size of larger, but arguably weaker solutions. And with transaction fees now becoming a major burden to a huge proportion of cryptocurrency users, it wouldn’t be surprising if it sees a massive influx of users in the near future — potentially driving its market capitalization up considerably as a result.

RAMP ($RAMP)

RAMP is a new DeFi platform that aims to produce cross-chain liquidity on/off-ramp that allows users of non-ERC-20 assets to quickly and easily utilize their staked assets by depositing them on the platform to mint a stablecoin known as rUSD.

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As a stablecoin issued on the Ethereum blockchain, rUSD can then be used to participate in the extensive Ethereum DeFi ecosystem — without having to exchange the cross-chain assets they deposited as collateral.

 

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By doing this, users not only maintain their original staking yields from their cross-chain assets, but can also farm RAMP tokens and earn yields from a variety of other DeFi protocols using their stablecoins — allowing users to maximize the yield from their assets.

RAMP has been around for less than six months, but in that time it has managed to generate quite the community and still has a relatively low market cap at ~$30 million. But with the potential to unlock the value of almost $1 trillion worth of cryptocurrency assets, we think there’s plenty of room for further growth.

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DeFi

DeFi: Who, what and how to regulate in a borderless, code-governed world?

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Hold onto your hats, boys and girls! It’s a new world — a financial system without intermediaries, that anyone can access 24 hours a day with only a mobile phone and a wallet! As Julien Bouteloup said to me: 

“In DeFi, what we are building is fully decentralised technology, fully transparent, run by mathematics. No one can beat that.”

He continued: “We are building on research papers, 40 years of research, fundamental research, discrete mathematics being built and put on-chain that no one can beat. You cannot beat that. GitHub didn’t exist in the ‘90s. First, the fact that we’re going at the speed of light, is because everything is open source, and everyone can participate.”

A Novum Insights report stated back in August that since 2020, the DeFi market has grown by a factor 40, with the total value locked in DeFi at around $61 billion at the time (while the current TVL stands at around $165 billion). Stablecoins’ capitalization, an important part of DeFi, grew in the first half of 2021 to $112 billion.

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Massive gains are being made but, at the same time, DeFi investors are also losing money because DeFi is not regulated, moderated, intermediated, hosted or validated by a central authority, only driven by smart contracts. So if a smart contract fails or is attacked, consumers have no remedy. Loretta Joseph, global digital asset regulatory expert, said to me: “Regulators protect consumers and investors. In DeFi, you don’t have any intermediaries to regulate, so it’s totally P2P. The question is how it will be regulated in the future. People are going to get scammed. When people start to get scammed, the first thing they do is complain to the regulator.”

Indeed, since 2019, DeFi protocols have lost about $285 million to hacks and other exploit attacks. And as the experts stated, the majority of hacks were due to developer incompetence and coding mistakes. That’s significant when the sector is entirely reliant on the code.

The challenges of regulation

The U.S. Securities and Exchange Commission’s Hester Peirce said in an interview with Forkast.News about DeFi back in February: “It’s going to be challenging to us because most of the way we regulate is through intermediaries, and when you really build something that’s decentralized, there’s no intermediary. It’s great for resilience of a system. But it’s much harder for us when we’re trying to go in and regulate to figure out how to do that.”

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Regulatory concerns tend to be around the volatility of crypto markets as contrasted with government-backed fiat currency, the risk of money laundering and terrorist financing, the unregulated nature of the market, and the absence of recourse for financial losses. Nonfungible tokens are exploding, generating excitement, confusion, legal questions and massive gains. NFT markets are also attracting large crypto transactions, which will likely bother regulators, who may see the big money moves in NFTs as money laundering. At a macro level, the decentralization of the financial system and the ability to manage economic stability and protect consumer interests poses a further challenge to regulators.

DeFi decentralized autonomous organizations (DAOs) are popular as a means of transferring cryptocurrencies across different blockchains. This supports crypto lending and yield farming. DAOs, by conservative estimates, oversee more than $543 million. In a DAO, information technology governance and corporate governance are one and the same. The organization is governed and operated by smart contracts, which are monitored and enforced by algorithms. The code both governs and executes. Should the algorithms fail, who then is responsible?

In a joint article, dubbed “Regulating Blockchain, DLT and Smart Contracts: a technology regulator’s perspective,” a group of researchers outline some key points to consider: (1) the importance of identifying central points which can be used to apply regulation to, such as miners, core software developers, end users. They even raise the potential for governmental or regulatory players to be potential participants; (2) issues of identifying liability — could core software developers be held to account?; (3) the challenges with the immutability and lack of update-ability of smart contracts; and (4) the need for quality assurance and technology audit processes.

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It is expected that exchanges and wallet providers will be a focus for regulators. Decentralized exchanges allow users to trade directly from their wallets in a P2P manner without intermediaries. Global money-laundering watchdog the Financial Action Task Force (FATF) has exchanges in their sights. Christopher Harding, the chief compliance officer of Civic, noted that the FATF proposed guidelines which suggest that DApps will need to comply with country-specific laws enforcing FATF, AML, and Counter-Terrorism Financing requirements.

A recent review of 16 leading exchange platforms by the London School of Economics and Political Science found that just four were subject to a significant level of regulation related to trading, so there is a clear gap. Getting listed on any major exchange now requires a project to have passed auditing, but meaningful security doesn’t end there. Toby Lewis, CEO of Novum Insights, made the point:

“Also, remember that smart contracts can be attacked. Even if they are audited, it does not give you a guarantee that it will be exploit-free. Do your own research before you start.”

In an open-source environment where projects are developing at an average compound growth rate of 20% per year, finding just the right moment to regulate, wherein people are protected from risk but innovation is not constrained, is a classic problem to solve. Some governments have addressed achieving this balance by using regulatory sandboxes (U.K., Bermuda, India, South Korea, Mauritius, Australia, Papua New Guinea and Singapore), while some have gone straight to legislating (San Marino, Bermuda, Malta, Liechtenstein).

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Far from resisting regulation, leading DeFi figures embrace it as part of the maturing of the industry. In an interview with Cointelegraph, Stani Kulechov, the founder of DeFi lending platform Aave, suggests that peer review will be the future: “Auditors are not here to guarantee the security of a protocol, merely they help to spot something that the team itself wasn’t aware of. Eventually it’s about peer review and we need to find as a community incentives to empower more security experts into the space.” In the same article, Emeliano Bonassi spoke about ReviewsDAO, a peer review forum for connecting security experts with projects looking for reviews. Bonassi sees potential for this to become a learning opportunity where people with specialized knowledge can contribute to improving the security of the ecosystem.

Tan Tran, CEO of Vemanti Group, suggested: “Going forward, I do see accelerated adoption of platforms with permissionless financial products and services that can be used by anyone anywhere, but each will be governed by a regulated-party with centralized control to ensure accountability and compliance. This is not about stopping innovation. It’s more about deterring bad actors from exploiting unsophisticated consumers.” Giving an expert opinion on DeFi to Cointelegraph, Brendan Blumer, CEO of Block.one, concluded: “The real winners in the digital economy will be those that think long-term and take the time to ensure their products meet jurisdictional and professional service requirements.”

It certainly looks like exchanges and software developers could be in the sights of regulators. We anticipate regulators will look for ways to improve technology quality assurance processes and DeFi governance, which can only be done in conjunction with the industry. Mark Taylor emphasized that regulators need to continue to work in partnership with crypto industry players to protect consumers.

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Julien Bouteluop explained: “We are actually building, in DeFi, everything that traditional finance has, but faster, stronger, more transparent and accessible by everyone that’s here. It’s really different. It means that anyone in the world can access technology and doesn’t need to ask permission from anyone. I think it’s necessary to push for innovation, and to build a better world.”

Who, what and how do we regulate in this global 24/7, borderless market? This is a whole new ball game. Regulators and industry will need to work hand in hand.

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SEC registrants seek DeFi and physically backed Bitcoin ETF approval

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Crypto companies from the United States filed two registration statements with the Securities and Exchange Commission, seeking permission to sell exchange-traded funds (ETF) in relation to Bitcoin (BTC) and decentralized finance (DeFi).

Atlanta-based investment company Invesco joined New York’s Galaxy Digital Funds to file and register Invesco Galaxy Bitcoin ETF, a trust with physically protected private keys. Illinois-based Amplify ETFs filed the second registration to add DeFi-centric open-end EFT funds offering to the Amplify ETF Trust.

If approved by the SEC, the Invesco Galaxy Bitcoin ETF will be registered as a securities offering with the ability to get listed on traditional national exchanges in the United States. According to the filing, the trust will use “robust physical barriers to entry, electronic surveillance and continuously roving patrols” to protect Bitcoin private keys.

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On the other hand, the SEC’s approval for Amplify ETFs’ FORM N-1A filing will allow the company to issue unlimited new shares for American investors. However, this is the second time Galaxy has applied for a Bitcoin ETF registration since April 12, the approval of which is due in October.

Both Invesco and Amplify ETFs are yet to respond to Cointelegraph’s request for comment.

SEC Chairman Gary Gensler has been pursuing crypto businesses to register with the authorities. In a statement from Sept. 14, Gensler asked crypto-related companies to “come in and talk to us,” citing probabilities of legal status on a case-to-case basis.

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In August, Gensler shared similar sentiments, seeking a robust crypto regulatory regime to improve investor protection across “crypto finance, issuance, trading, or lending.” More recently, he demanded clarity for the stablecoin ecosystem. “The poker chip is these stablecoins at the casino gaming tables,” he said.

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Bitcoin-Based DeFi Platform Portal Raises $8.5M in Funding Round

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  • Portal secures $8.5 million in investments to develop Bitcoin-based DeFi platform.
  • Prominent firms like Coinbase Ventures, ArringtonXRP Capital, and more participated.
  • The project aims to deliver self-sovereignty to its users.

Bitcoin-based DEX project, Portal, announced the closing of an $8.5 million funding round with investors from prominent firms. Participants include Coinbase Ventures, ArringtonXRP Capital, OKEx, Republic.co, Shima Ventures, LD Capital, Monday Capital, GenBlock, Taureon, Autonomy Capital, Krypital, and B21 Capital.

Aside from this, senior executives and founders of Ethereum also joined. The list went on as DFINITY, MobileCoin, Tether (USDT), Galaxy Digital, Bitcoin.com, Republic, Centre.io, Polymath, Æternity, Hedera Hashgraph, Blockstream, Reef Finance, GlobeDX, FIO, Portion, and 4K also participated.

Portal is a self-hosted Layer 2 wallet and true cross-chain DEX on Bitcoin. The platform makes atomic swaps between BTC and other coins. This solves one of the hardest problems that the entire crypto industry is facing.

According to Michael Arrington, founder of ArringtonXRP, decentralized cross-chain bridging is one of the main issues that the industry is facing at the moment. This is mainly because multiple blockchains are gaining traction. He expressed his excitement for the project.

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Eric Martindale, Chief Executive Officer of Portal said,

By bringing a fast, peer-to-peer, Layer 2 exchange — with the speed of centralized exchanges but with privacy — Portal is delivering on the promise of self-sovereignty for everyone.

Aside from Arrington, Brian Johnson Republic Capital’s Director of Operations also shared his thoughts. According to Johnson, Republic Capital invested in Portal with interoperability in mind. He says that this is a requirement for blockchain to tap into mainstream finance.

Portal uses Bitcoin’s “hash time-locked contracts.” This is applied to ensure that each user will retain full control over funds offered in trades. This prevents potential loss of funds and counterparty risks.

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