Large traditional financial firms need guardrails in the world of blockchain-based assets, especially given that decentralized finance (DeFi) remains so vulnerable to hacks and losses, the head of digital assets at custodial banking giant State Street said on Tuesday at the Consensus conference in Miami.
What’s still fresh in people’s minds is that last month was a big money-maker for hackers in the DeFi space. In early April, the on-chain lending protocol Drift suffered a $295 million attack, followed by a similar-scale attack on KelpDAO later that month.
Speaking about the future of tokenized real-world assets (RWA), Angus Fletcher, head of digital assets at State Street, said the young crypto industry needs to find solutions now. “What are the problems that we really need to solve now in order for us to do trillions of dollars worth of activity on the chain in the future? We need to start solving those problems now,” Fletcher said.
Fletcher said interoperability between blockchains needs to be clearly defined and understood for institutions to safely scale cryptocurrencies.
“On a cross-chain basis, when you own tokens on one chain versus owning tokens on another chain, it’s important to understand what legal ownership and legal rights are. Our clients need to know and understand that. As an institution, it’s critical that we get that right,” he said.
Dennis Bree, head of Morpho, a blockchain lending protocol, said that April may be the month with the most DeFi hacks so far. “I think there’s a general understanding of the safety vectors, the underlying assets that are used as collateral. We’re starting now and we’re definitely going to see managers do more effort in thinking about the risk of some of these assets,” Bree said.
Day-to-day barriers to agency participation include numerous regulatory gray areas, Bree said. He said Morpho managers came to them with $10 to $15 billion in assets seeking to understand how the digital vault managed that capital.
“For example, when you have capital and you bring it to the blockchain, you have a receipt token, and the receipt token doesn’t just increase in quantity, it increases in value. So, how does the CFO of a finance company think about accounting?”