DeFi a cutting-edge technology with risky processes: Chainalysis

Mexico City — The adoption of Decentralized finance (DeFi) it is a technological advancement with certain risk factors that must be considered when using this phase of the blockchain.

It is an open source software and therefore accessible to all. It uses blockchain technology, which has its dangers,” Dan Cartolin, Chainalysis account manager for North America and Latin America, told Bloomberg Line.

According to Cartolin, the blockchain still has spaces that can be used to scam users.

“It uses blockchain technology, which has its dangers because if a malicious user finds a bug, they can get away with the money. However, DeFi also benefits from bug fixing, so solutions are never far away.

What is DeFi?

DeFi seeks to fulfill the function of a bank, but based on block technology, through the use of decentralized networks to convert traditional financial products into reliable and transparent protocols.

“The need to trust a central actor or institution is minimized and this relies on smart contracts. Smart contracts make it possible to conclude transfers and agreements on the blockchain, without the intervention of a necessary central authority, such as a bank,” said Cartolin.

The main objective of DeFi is provide banking services based on cryptocurrencies, according to analyst and private investor, Cipatli Jimenez.

However, he explained that he has some issues. “Not because of the regulatory issue, but because of the fact that they consider that they are putting gas on something that is hot. Everything is peace and harmony while it goes up, but when the price goes down, the problem comes”.

Compared to the processes that can be carried out in a bank, DeFi replaces them with computer codes.

In the market you can already see some companies that have this technology, such as Canada-based digital asset lender Lend. The firm explains on its website that it grants loans in dollars while maintaining positions in bitcoins.

In detailing the process, Lend explains that if the price of bitcoin drops drastically, the client will be notified and will need to increase their position in the cryptocurrency to normalize the loan-to-value ratio.

But if the value of the crypto asset increases, the return remains in the user’s balance, which means there is only a bond with the loan balance.

These types of activities are still far from being able to reach Mexico, according to the analyst. “A loan like this will never be granted by Bitso due to legal issues with the National Banking and Securities Commission.”

The adoption of DeFi is still a slow process and requires advancements in technology and infrastructure, which is why it has only been recorded in countries that already have advanced cryptocurrency development, according to information from Chainalysis .

stand out United States, China, Vietnam, United Kingdom and some Western European countries. These types of places stand out as countries with middle and high incomes or that have developed cryptocurrency markets.

Mexico Ranks 104th in Deposits in DeFi Adoption Ranking; while the place of receipt of this technology is 25 of the 144 countries considered, according to information from the firm.

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