How DeFi could unlock institutional liquidity

Published on by Cryptoslate | Published on

While centralized prime brokers have promise, the liquidity pouring into decentralized finance protocols suggests DeFi is the future.

These protocols replace order-books with smart-contract based liquidity pools and bonding curve price models and incentivize traders to provide liquidity by offering rewards for locked tokens.

These AMMs sucked liquidity away from other exchanges to form deep pools of liquidity, rising to account for over 90% of DEX volume, with the biggest examples like UniSwap briefly eclipsing centralized exchanges like Coinbase Pro in trading volume.

By integrating with lending and borrowing protocols in the lego-brick world of DeFi, these AMMS can provide the liquidity needed for DeFi to act as a decentralized prime brokerage.

Composability of liquidity on these protocols is limited by flawed interoperability methods; like wrapped bitcoin, which damages the permissionless and censorship-resistant qualities of DeFi by relying on centralized custody of assets.

"The ideal ecosystem architecture is that all liquidity is fluid between protocols and all value accrued is shared pro-rata in a decentralized way" said Galia Benartzi, Bancor co-founder "This is better for consumers and innovation, but challenges our traditional conceptions of competition and winner takes all market architectures."

At the forefront, a few protocols are using MPC to secure assets on L2 networks-creating the security, interoperability, and privacy needed to deliver DeFi liquidity to institutional players.

Ren provides a cross-chain liquidity network secured by MPC. According to founder Chris Burgess, this can be combined with automated maker markets to "Connect underutilized liquidity, and open a new era of utility for all digital assets."

THORchain is described by the founders as a cross-chain Uniswap, that creates trustless tokenized representations of assets without pegs or wraps, creating deeper interoperability with no loss of decentralization - a vision that has attracted over $30M liquidity by offering an APY of 85.22%. Qredo is a cross-chain AMM protocol that secures assets without pegs or wraps using MPC network backed by custom HSMs in distributed data centers.

Digital veteran Anthony Foy has been building pioneering tech companies for over 20 years, and turned his attention to blockchain after several successful ventures in cloud computing and SaaS. At Qredo, Anthony leads the development of a cross-chain liquidity protocol that enables trade credit to be granted between counterparties pre-trade, removing counterparty and settlement risk.