Welcome to the Crypto Metaverse, where it is very easy to lose – News Couple

Welcome to the Crypto Metaverse, where it is very easy to lose

Facebook and Microsoft’s idea of ​​a Metaverse — think virtual offices filled with creepy Dorian Gray-like avatars — is nowhere near as dystopian as the crypto-fueled metaverse that already exists today.

This last world is the real key factor, as my colleagues at Bloomberg News recently described it. It is a place that operates on Decentralized Finance (DeFi), a high-octane $100 billion network of largely unregulated platforms that lend and exchange digital currencies for a fee.

It is a place where parents are concerned that their children are getting real money in blockchain games like Axie Infinity; A place where virtual museums display artworks sold by real auction houses for eight-figure sums; A place full of inflated prices, insider counterfeiting and countless scams and frauds. It’s a place where, for every interesting financial innovation, a hack, swipe or survey is around the corner – the Squid game code is only the latest example.

The question now is how long this place, where real and virtual riches are created and lost, will remain in the Wild West. Maybe not very long.

We know from history that the speculative frenzy usually wears off eventually, while the rules and standards are not too far behind the fast-growing financial technology. There was a time when peer-to-peer lending and instant online payments were not as moderated as they are today, for example. Regulators are already taking a closer look at DeFi.

From the point of view of the moderators, there are crypto assets such as stablecoins, which are managed in an algorithmic way to avoid extreme price fluctuations. These serve as fuel for some of the most attractive DeFi projects, such as locking cryptocurrencies into trading pools that offer ridiculous (and short-term) annual returns of over 1,000%, but also some of the most bank-like ones. This could involve an issuer buying real-world loans and bonds, backed by consumer debt or real estate, and securitizing them as tokens on the blockchain offering a 5%-10% return. (The issuer gets more cryptocurrency in return.)

Take a look at the old school funding opportunity here: More automated and transparent processes, with fewer intermediaries, could save money and help avoid the kind of scams that led to the collapse of financial services firm Greensill Capital.

But the reality today is that even these DeFi projects still carry significant risks. Review the finer details to make it clear that a lot of things can go wrong. The counterparty chain is complex – a presentation shows, for example, an India-based entity, associated with a Delaware-based entity, connected to a pool of crypto-assets managed by another entity.

The closer the DeFi project is to the banks, the more likely they are to follow bank-like rules and costs. On top of regulation, regular banks – called “TradFi” – are wading through. French bank Societe Generale SA is proposing to refinance a token portfolio of covered bonds by borrowing from a DeFi platform. It would be the first such move by a major lender, and a sign that the financial sector would rather choose to be crippled by the crypto chaos.

Read more.

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