Crypto Meltdown Calls for a Decentralized Compliance Layer to Protect User Interest
June 21 2022 - 1:00PM
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Over the last few weeks, the cryptocurrency market has been rocked
by extreme volatility. There has been a steep decline in the price
of digital assets. Such has been the meltdown in that the entire
market cap has fallen under $1 trillion, which surpassed the $3
trillion mark at the peak of the bull cycle. Being a nascent market
means high volatility is a common phenomenon at this stage of
growth. That said, this volatility has made crypto so attractive to
investors and speculators. However, volatility doesn’t always mean
just a significant upside but also a remarkable downside. And
that’s what we are seeing in this fourth crypto cycle, so all this
carnage is not unprecedented. In fact, a 70% to 80% drop in Bitcoin
and Ether prices from their all-time highs can be seen as a golden
‘buy the blood’ opportunity to plan for the future with a focus on
research and only investing what you can afford to lose. However,
we also witnessed this time that the significant drawdown in the
crypto prices was exacerbated by the lack of proper risk management
practices adopted by some of the biggest names in the industry.
Extreme Market Conditions One of the biggest centralized lenders in
the crypto space, Celsius Network, was among this torrent of bad
news as it abruptly froze customer withdrawals, swaps, and
transfers between accounts due to what it said were “extreme market
conditions.” This pause in withdrawals resulted in more volatility
and raised concerns about Celsius’ solvency. It was a liquidity
issue, according to the experts, a classic banking problem. Just
late last year, Celsius Network raised $400 million in a Series B
funding round at a valuation of $3.5 billion. Back in October, the
crypto lender had $25 billion in assets from more than 1.7 million
users, which fell to around $11.8 billion as of last month. Besides
spooking investors and the market, this is catching the attention
of the administration and lawmakers during times of economic
uncertainty, including high inflation and global market
instability. State securities regulators in Washington, Alabama,
Texas, Kentucky, and New Jersey are now investigating Celsius
Network’s decision to suspend customer redemptions this week. It is
expected the proposed regulations to regulate stablecoins by the
President Working Group could extend to the entire crypto space in
order to “mitigate the risks of these assets.” The PWG report calls
for federal regulatory oversight, restricting institutions from
lending customers’ digital assets out, and compliance with
liquidity and capital requirements. Need for a Better Solution Much
like a bank, the centralized lender Celsius was using the crypto
deposits from over a million retail customers and investing them in
the crypto market, including DeFi but did not apply proper risk
management or provide any safety measures to its users. Thus, the
market needs a truly decentralized solution that doesn’t obscure
how they deal with their funds. Astra protocol is one such
decentralized solution that provides a compliance layer for the
Web3 economy. In the DeFi sector, undercollateralized loans have
been gaining traction. Still, while they offer the benefit of no
central control, they carry considerable risks in terms of a lack
of asset liquidity and instant payment. Astra’s truly decentralized
project onboards traditional players for funding, allowing for
lending on the Astra network, and eliminating the need for these
under-collateralized loans. By converging the power of Web3.0 and
traditional financial ecosystems, Astra Network aims to create the
next iteration of decentralization and become the largest network
in the industry. Zurich, Switzerland-based Astra basically allows
protocols to comply with society’s numerous regulations without
giving up the benefits of decentralization or putting investors at
risk. Decentralized Compliance Layer Amidst the mainstream global
adoption of crypto and the regulatory challenges coming its way,
Astra has designed its network to be the only fully KYC (know your
customer) compliant decentralized blockchain ecosystem which is
available worldwide with the protocol performing all compliance
practices. This regulatory compliance is offered across a vast
number of DeFi protocols to reassure users that their investments
are completely protected while preserving their anonymity. The
Astra network further offers its infrastructure to countries and
their treasuries to issue financial products such as regulated and
sustainable CBDCs bonds and financial instruments while taking
advantage of the incredible yield available through digital assets.
To achieve this, Astra has equipped all DeFi smart contracts with a
fully decentralized compliance layer, including KYC & AML
capabilities, and leveraging the expertise of trusted legal firms
to resolve real-world compliance issues. To provide the best
KYC/AML services available, Astra has developed a unique
Decentralized Legal Network (DLN), an ecosystem that contains
major, global legal and audit firms. In terms of consensus
mechanism, the system that allows distributed systems to work
together and stay secure, Astra is using the environmental-friendly
Proof-of-Stake (PoS), which is the perfect fit to build a
real-world solution for billions of users through its improved
scalability and increased transactional throughput. A Vast Network
Compliance is not the only feature offered by Astra. The project
provides several other services, including enhanced vetting, a
dispute resolution platform, AML, and reporting for process
feedback and improved procedures. The demand for these services is
increasing rapidly as the crypto market continues to onboard more
and more people and capital invested in the sector skyrockets. Not
to mention all the challenges faced by the industry, such as lack
of certainty for smart contracts, recurring derivative contract
disputes, high legal risks in connecting real-world assets to the
blockchain, and poor management of claims disputes on-chain. Astra
here certainly has the potential to gain market fit with its
customizable services that offer security in retrieving incorrect
transactions, create secure escrow accounts to prevent unexpected
withdrawals, provide a decentralized legal layer for user
protection, and equip insurance protocols with an in-built claim
verification tool. Overall, with its KYC, KYB, and AML services for
decentralized organizations, Astra aims to ensure that all DeFi and
crypto platforms keep pace with the ever-changing regulatory
landscape. Image by Gerd Altmann from Pixabay
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