Large traditional financial firms need guardrails in a world of blockchain-based assets, particularly given that decentralized finance (DeFi) remains so susceptible to attacks and losses, the head of digital assets at custodial banking giant State Street said at Consensus Miami on Tuesday.
Still fresh in people’s minds, last month turned out to be a bonanza for hackers in DeFi, with on-chain lending protocol Drift suffering a $295 million exploit in early April, followed by a similarly sized attack on KelpDAO later in the 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 things that we really need to solve now for a future where we have trillions of dollars of activity on the chain? We need to start solving those problems now,” Fletcher said.
For institutions, interoperability between blockchains must be clearly defined and understood, Fletcher said, so that cryptocurrencies can scale safely.
“There has to be an understanding of what the legal title and legal right is when you have a token on one chain versus another, across the chain. Our customers need to know that and understand that. As institutions, it’s critical that we get there,” he said.
The institutional head of blockchain lending protocol Morpho, Dennis Bree, said that April was probably the month that has seen the most attacks in DeFi so far. “I think there’s a general sense of understanding of the security vectors, the underlying assets that are used as collateral. And we’re starting now, certainly, to see curators do a lot more diligence in thinking about the risk of some of those assets,” Bree said.
Everyday barriers to institutional participation include a plethora of regulatory gray areas, Bree said. He said Morpho has curators who come to them with $10 billion to $15 billion in assets under management, seeking to understand how a digital vault manages that capital.
“For example, when you have your capital and you put it on a blockchain, you have a receipt token, and instead of the receipt tokens just increasing in number, they increase in value. So how does the CFO of a treasury company think about the accounting treatment of that?”
