decentralized finance
Oct 13, 2020

DeFi Firewall – The Devil is in the Custodial Details

The crypto economy is evolving at lightning speed - over $8 billion in locked DeFi value and nearly $11 billion in traded exchange volumes. Question now is does your institution have the right custodial partner at the helm for security and access?

In just a decade, we have progressed to smart contract-based blockchains supporting thousands of different crypto assets today. Ethereum emerged in 2013 with a promising range of possible decentralized applications or dApps.  The concept of decentralised finance (DeFi) was first coined back in 2018 at a meetup hosted by early incumbents Dharma, Maker and Compound, Ox, dYdX and Wyre and has since been the narrative driver of the Ethereum protocol. It’s also today’s buzzword, following the valuations of MakerDao and Compound in 2019. Still in its infancy, DeFi continues to go from strength to strength, now having over $8 billion in locked value and nearly $11 billion in traded exchange volumes. It spans trading aka DEXs, lending and borrowing, hedging and pretty much everything else one would expect from a financial ecosystem. It promises superior yield returns, fixed supply assets, and lower feesall very attractive in light of fiat currencies being devalued through QE, scarce liquidity in capital markets, and ultra low interest rates. In fact, the upsides are now attracting institutional investorsonly recently we have seen the launch of the DeFi Alliance (https://defialliance.co/), by some of the biggest trading names in institutional crypto.

However, institutional investors are not the same as individual investors, who have so far been dominant in DeFi. For example, brokers have to look after customer deposits, and funds need to manage investor funds. In both cases, they have to prove to their investors and customers that their money is safe from external and internal threats, in order to get any business at all. Further, most are regulated, so they need to demonstrate compliance. And then there is the question of scale and speed - managing large numbers of transactions manually is impractical and too costly.  However, timing is everything in crypto markets and if you miss an opportunity or take too long then your positions may be liquidated by DeFi protocols. 

So how do institutions capitalise on opportunity securely and compliantly in DeFi?  

This is where crypto custodians like Trustology come in.  As the only custodial wallet to have integrated with MetaMask, users like investment managers and brokers are already able to securely work with DeFi protocols either manually or automatically across web and mobile apps or APIs.  Now, with our new DeFi Firewall controls for smart contract transactions, they’ll be able to securely and easily move assets between DeFi protocols and remove barriers of trust with their clients looking to place funds with them. 

This is because every transaction is proxied through TrustVault’s rules engine, and only signed with custody keys and sent to the network if all the controls are satisfied e.g. protocol smart contract address, contract method, and method parameters, including token smart contract and external addresses are in the allowlists (aka whitelists). 

This really opens up DeFi to institutional firms, as they know that their funds can only be used with approved protocols and tokens, and sent to approved addresses. They also know that the fund’s keys will not be lost or stolen by hackers, or misused by employees, as they are custodied with Trustology, and are subject to user safeguards like multisig and allowists. What’s more, regulatory compliance is enabled with built-in KYC and AML controls. And, as we run our own nodes and indexers, we can also make sure users do not miss protocol events like voting or margin calls, as TrustVault notifies them by email, mobile push notifications or webhooks.

As the new DeFi Firewall is built on top of TrustVault, it inherits all of the platform’s benefits. Our HSM firmware, coupled with our insurance and advanced multisig and allowlist safeguards, keeps client assets safer. Our scalable and resilient infrastructure is capable of signing and submitting transactions faster - in less than a second. And our web and mobile apps, MetaMask extension, APIs and webhooks make it easier to transact, for humans and machines. 

So, if you are a business that is considering getting involved in DeFi to maximise your earnings, be that trading on DEXs, yield farming, or anything else, an insured custodial wallet can keep your assets safe and you compliant. Contact us to learn more.

 

Become a DeFi Design Partner

As you are here, please consider joining our DeFi Design Partner Programme. We’re inviting funds, brokers, exchanges and DeFi protocols to work with us to understand, design and deliver a technical solution that’s mutually beneficial. Register your interest here to learn more.

 

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Related readings:

Conquering Decentralized Finance: Enter the Custodians

Trustology’s Custodial Wallet To Underpin Binance’s DeFi Ecosystem

How Investment Firms can Mitigate Risks Associated with DeFi

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