Big traditional finance firms need protection in a world of blockchain-based assets, especially given how decentralized finance (DeFi) remains so susceptible to hacks and losses, the head of digital assets at custodian bank giant State Street said Tuesday at Consensus Miami.
Still fresh in people’s minds, last month proved to be a hacker bonanza in DeFi, with on-chain lending protocol Drift suffering a $295 million exploit in early April, followed by a similar attack on KelpDAO later this month.
Speaking about the future of tokenized real-world assets (RWAs), Angus Fletcher, State Street’s head of digital assets, said the fledgling crypto industry needs to find solutions now. “What are the things that we actually need to solve now for a future where we have trillions of dollars of activity on the chain? We need to start eliminating these problems now,” Fletcher said.
For institutions, interoperability between blockchains must be clearly defined and understood, Fletcher said, for crypto to scale safely.
“There needs to be an understanding of what is the legal title and legal right when you have a token on one chain versus on another, across the chain. Our customers need to know and understand that. As institutions, it’s critical that we get there,” he said.
The head of institutions at blockchain lending protocol Morpho, Dennis Bree, said that April was probably the month that saw the most hacks in DeFi so far. “I think there’s just a general sense of understanding the security vectors, the underlying assets that are used as collateral. And we’re starting now, certainly to see trustees do a lot more due diligence when we think about the risk of some of these assets,” Bree said.
The day-to-day barriers to institutional involvement included a multitude of regulatory gray areas, Bree said. He said Morpho has curators who come to them with $10 to $15 billion in assets under management to try to understand how a digital box manages that capital.
“For example, when you’ve got your capital and you bring it into a blockchain, you have a receipt token, and instead of receipt tokens just increasing in number, they increase in value. So how does the CFO of a financial company think about the accounting treatment of that?”
