As Decentralized Finance Continues to Evolve, Big Four Audit Firms Will Play a Major Role in DeFi

Big four audit firms are set to be a significant part of the Decentralized Finance (DeFi) ecosystem according to the latest blockchain industry report by German-based non-profit, dGen.

The DeFi space, which has seen tremendous capital gains in TVL, will grow even more prominent in the coming decade as per dGen insights on its report. Jake Stott, the co-founder of dGen, noted that support from other financial market stakeholders would be inevitable going forward. Tom Howard, Chief Strategy Officer at Mosendo, said;

‘Over time, traditional financial institutions will have no choice but to interact with  decentralized finance tools, slowly disinter-mediating the industry from the inside out.’

Functions like verifying the authenticity of an invoice, tracking payment settlements, and insurance claims could occur faster with the help of a blockchain. Their role will be to act as an intermediary between DeFi and traditional finance.

Dubbed the ‘Decentralised Finance: Usecases & Risks for Mass Adoptionreport, dGen paid particular attention to the DeFi space. Currently, over $2.5 billion in funds is locked within DeFi based products. It is an area that has been hailed as the future of markets given almost all traditional assets are finding their way onto Ethereum based protocols. Though still at its infancy stages, dGen acknowledged this underlying potential in DeFi stating that it,

“could leapfrog the current FinTech industry, providing a new structure of financial services.”

Consequently, this optimistic narrative has gained massive support from across financial services, tech, and the academia elite. DGen’s researchers are bullish that the market could grow past the trillion-dollar mark by 2030. The report highlights that DeFi will: “Provide income for thousands of gamers, streamers, and influencers”

It will also be adopted by European financial institutions who will switch to offering “DeFi-enabled savings and pension accounts.”

A recent Q2 report by industry giant, ConsenSys, concurs on the possibility of a DeFi future given historical growth rates in the past three months. It goes on to detail that Bitcoin tokenization protocols and Yield farming frenzy are the fundamental factors behind this growth as per now.

While the DeFi space has emerged as an avenue to make better interest compared to zero percent in some jurisdictions, it continues to face security threats arising from the core infrastructures.

“Knowledge and security risks will continue to reduce, on top of a growing number of securities in the event of a hack. It appears the solutions the industry needs to scale will come from within the industry itself.”

The team is, however, optimistic the underlying issues might be resolved in as little as one year. Kain Warwick, Founder of Synthetix told dGen,

‘Insurance on DeFi is still extremely limited[…] DeFi still has significant tail risk, so insurance is likely to remain very costly in the short term, but as protocols mature, costs should come down[…] allowing for simpler and more useful insurance to emerge’.

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Author: Edwin Munyui

Facebook Calibra Wallet Devs Reveal Distributed Auditing Proofs of Liabilities (DAPOL)

  • Facebook has recently introduced a new audit protocol on its Calibra wallet app for auditing of its assets.
  • In a bid to improve the already existing distributed audit process, Calibra’s research team brought forward the Distributed Auditing Proofs of Liabilities (DAPOL) onto the platform.

Dating back to April 2014, the cryptocurrency world witnessed one of its biggest heists when a hacker managed to illegally transfer a large number of Bitcoins to himself. This was after allegedly getting hold of an Mt. Gox auditor’s credentials. In April 2014 Mt. Gox announced that Bitcoins, worth $450 million, had been stolen from customers. This ultimately led to the company’s liquidation. The company, however, would have survived had it adopted a legit protocol for asset auditing.

Calibra team leader and blockchain engineer Konstantinos Chalkias recently told the public that DAPOL protocol was setting a platform to improve on the already existing auditing methods. Most importantly to enhance privacy. The protocol allows a distributed audit of liabilities to be undertaken on entities.

DAPOL’S Main Advantage Over The Old Auditing Techniques

Arguably the main advantage brought to the table by DAPOL is its enhanced privacy, where a third party is combined together with a decentralized audit. This typically means that during an audit, all accounts are focused on and none is overlooked. In his statement, Konstantinos Chalkias explained that in the Distributed Auditing Proofs of Liabilities (DAPOL), it does not expose the number of people who verify their inclusion in the totals. He said,

“The Distributed Auditing Proofs of Liabilities (DAPOL) are schemes designed to let companies that accept a) monetary deposits from consumers (i.e., custodial wallets, blockchain exchanges, banks, gambling industry etc.) or b) fungible obligations and report claims from users (i.e., fake news and hate speech reporting, disapproval voting etc.) to prove their total amount of liabilities or obligations without compromising the privacy of both users’ identity and individual amounts.”

He gave an example of the Enron corporation scandal case which ran bankrupt and collapsed some years back after the company in an attempt to cover up its illegal dealings paid an auditor Arthur Andersen to tamper with the information. He added that the corporation’s downfall would have been avoided had it adopted a more private and transparent auditing process.

Full Transparency For Everyone

DAPOL has proved to be an improvement from old distributed auditing processes in that it comes with new features. One of the features is that it allows everyone to take part in processes like proof verification and offers a more sophisticated validation tool than was not offered before. Calibra’s team is not fully sure but is quite optimistic that DAPOL can be integrated onto Facebook’s Libra project to have an impact on such domains as economic data, crypto blockchain wallets, and public health.

The team is open to inviting any player that shares the same development enthusiasm on DAPOL’S project as them. This is after they released their plans to make the code open-source soon. It is their hope that with time this new DAPOL distributed audit process will be adopted widely by crypto firms globally.

“The backbone of this proposal is based on the enhanced Maxwell’s Merkle-tree construction and is extended using balance splitting tricks, efficient padding, verifiable random functions, deterministic key derivation functions, and the range proof techniques from Provisions and ZeroLedge solvency protocols, respectively.

Because Bulletproofs, Gro16, Ligero, Plonk, Halo and other efficient zkSNARK or zkSTARK constructions were not available or mature when the above solvency protocols were published, we will assume that any efficient zero knowledge scheme for set membership in summation structures can be a good candidate.”

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Author: Lujan Odera