Large traditional financial firms need guardrails 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 custody banking giant State Street told Consensus Miami on Tuesday.
Still fresh in people’s minds, last month proved to be a boon for hackers in DeFi, with 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), State Street head of digital assets Angus Fletcher said the young crypto industry needs to find solutions now. “What are the things that we actually need to solve now for a future where we have billions of dollars of on-chain activity? We need to start solving these problems now,” Fletcher said.
For institutions, interoperability between blockchains must be clearly defined and understood, Fletcher said, for crypto to evolve securely.
“There needs to be an understanding of what legal title and legal right is when you have a token on one chain versus another, on a cross-chain basis. 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 saw the most hacks in DeFi so far. “I think there’s just a general sense of understanding of the security vectors, the underlying assets that are used as collateral. And we’re certainly now starting to see conservatives doing a lot more due diligence when we think about the risk of some of these assets,” Bree said.
Everyday barriers to institutional participation include a plethora of regulatory gray areas, Bree said. He said Morpho brings in custodians with between $10 billion and $15 billion in assets under management, looking to understand how a digital vault manages that capital.
“For example, when you have your capital and you put it into 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?”
