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DeFi

The NFT Market Destined to Get a DeFi Makeover; NFT Tech Is Leading the Disruption!

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The signal pushing NFTs to enter the mainstream consciousness probably came when auction house Christie’s sold well-known digital artist Beeple’s Everydays: The First 5000 Days collage for $69 million in March. That piece remains the highest price an NFT has ever fetched.

A Brief History of NFTs

But NFTs – or non-fungible (i.e. unique) tokens – had been trading for a number of years, and probably trace back all the way to Colored Coins in 2012-2013. The idea behind colored coins was that metadata within particular Bitcoin transactions, some even as small as Satoshi, could be used to represent real-world assets such as real estate, company stocks, or digital collectibles.

With Bitcoin being natively fungible, the Colored Coins idea would only work so long as everyone agreed on the value of a particular colored coin, which proved a major design flaw. However, the Colored Coins idea became the genesis for what is now a major component of the crypto ecosystem.

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NFTs in the present form probably began in 2014-2016 on Counterparty, a peer-to-peer platform built on top of the Bitcoin blockchain. On Counterparty, people could create and exchange assets such as tokens, trading cards… and ultimately, Rare Pepe memes.

The Shift to Memes and Collectibles

Rare Pepes were the first iteration of art as NFTs, but it was their emergence on Ethereum in 2017 that saw the NFT scene hit its full stride.

2017 would represent the shift toward the domination of crypto art and collectibles in the NFT market, with Cryptopunks and CryptoKitties both launched that year. CryptoKitties was a blockchain-based game in which players adopted and raised virtual cats. Trading in the collectibles was so fierce it exposed the inherent throughput weaknesses of Ethereum that now, again due to NFT trading, remains a problem for the network.

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If CryptoKitties represent the mainstreamification of unique tradeable tokens on the blockchain, the past few years represents the natural extension of the NFT market. Traded on platforms like SuperRare, Rarible, OpenSea, and MakersPlace, NFTs are now dominated by digital art and collectibles.

Artists See The Possibilities

The artwork itself has become more elaborate, allowing real-world artists the opportunity to mint their work on a blockchain and earn money from selling them, and from the secondary market trade in them through royalties.

The scene is now a major sub-segment of crypto. Trading volumes saw a peak in the week of February 21 this year, at just under $200 million. Aside from Beeple’s ‘5,000 Days’ collage, other significant pieces include one of the rarest Cryptopunks, number 3100, sold for $7.58 Million, Beeple’s $6.6 million Crossroads, sold on the Winklevoss twins’ platform Nifty Gateway, and ‘The First Tweet’, Jack Dorsey’s first tweet on Twitter, which fetched almost $3 million. The likes of Paris Hilton have now entered the scene and Mark Cuban is a major investor in many of the current platforms.

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Largely Ethereum dominated, but with alternative networks now beginning to launch platforms, (such as Hic Et Nunc on the Tezos network), the NFT market still blends collectibles and art, with domain names, music, and memes filling out the space.

NFT Tech to Reshape the Market Once Again

NFT Tech is a platform that pairs the creation and trading of NFts with a liquid matching engine. It will include historical data from Orion Protocol to set minimum market prices to help smoothen the selling process for artists. That Oracle solution will be the first deployed to the NFT marketplace, providing price history, trading volume, and other information about valuable pieces.

NFT Tech’s development will be overseen by DuckDAO and VYSYN Ventures. It is also supported by crypto and DeFi veterans with experience in Cardano, YFDAI, and YearnFinance.

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Reaching Their Full Potential

NFTs will be tradeable across the Ethereum and Binance Smart Chain networks via a cross-chain bridge. The platform will allow for ease of transactions, letting traders buy and sell NFTs as easily as swapping tokens on Uniswap. Minting will be fee-less, marking an enormous advantage over ETH-based platforms where gas fees have made minting prohibitive for all but the highest-priced pieces. The platform will launch its own utility token, $NFTT, much like the Rarible platform’s $RARI token.

But the most innovative feature of NFT Tech will be the Liquid Matching Engine. This feature will help provide the crypto liquidity required to facilitate the seamless purchase and sale of most NFTs on the platform. Bringing critical liquidity to the market will make it more efficient and more vibrant, benefiting buyers, sellers, and collectors.

The Role of Liquidity

The platform will also introduce a role for liquidity providers (LPs), who will be able to pick up pieces at the lowest possible price, whilst also earning passive income. NFTs can also be used as collateral to borrow funds against and collectors can borrow funds to buy NFTs. NFT Tech, in many ways, is bringing the advancements of DeFi to the NFT industry.

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An efficient matching engine with a bid-order book for NFTs, with greater liquidity, is the next natural extension for the NFT marketplace as it goes mainstream. NFT Tech offers all the features of existing platforms, such as auctions, blockchain certification, and a sleek user interface, but adds market-making technology to bring liquidity and ease of use to the trading of unique pieces of art.

It is a platform that will become the Amazon of NFTs, allowing NFT markets to reach their full potential. While NFT Tech’s products have not yet launched, it’s expected that a

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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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