The DeFi disruption?

DeFi is challenging LatAm’s traditional banking models.

In March this year, the world’s first exchange traded fund dedicated to decentralised finance (“DeFi”) exchange-traded fund (“ETF”) launched on Brazil’s B3 stock exchange. The platform was launched by Brazil-based crypto asset manager Hashdex which, upon the platform’s debut, claimed that the DeFi ETF had attracted 2,200 confirmed investors and raised just shy of USD 10.5 million. The debut was spurred by the fact that interest in crypto ETF’s has intensified in Brazil over the last couple of years, with Hashdex and QR Capital – a blockchain investments fintech – leading the charge.  

How are the region’s central banks responding to the DeFi disruption? An economist and director of a macroeconomic consulting firm based in Argentina explained, “In Argentina, the central bank is responding erratically and late to the game. The reaction is part of a debate that has been going on for a long time, between traditional banks and fintechs. Accusations of unfair advantages were hurled at both sides. Only after it realised there was little other alternative, the local bank came up with its own cryptocurrencies only to then be blocked by the central bank. Now, new regulations are developing as a response.”

“In Argentina, the central bank is responding erratically and late to the game.”

Economist and director of a macroeconomic consulting firm, Argentina

Bitcoin has experienced a dramatic decline in recent months which could affect the rollout of further exchanges. That is to say, there was a kind of leak from the cryptocurrencies with the highest capitalisation – those investors who decided on betting on these coins have profited, in many cases up to 5% higher than standard cryptocurrencies.  

Additionally, all these investments beat the different types of dollar (in Argentina there is the official dollar, the parallel, the so-called cash with liquidation, etc.), to the stock market. For this reason, many pundits believe that beyond some punctual and transitory change in behaviour, it remains unlikely that in the medium term this type of investment will be affected. 

Cybersecurity threats remain a major issue. “This is a central theme. Clearly one of the central objectives of hackers is given by this type of instrument. There are many studies and reports that prove this. Although it is also true that day by day, the protocols are evolving, a significant part of the personal information and data obtained by hackers comes from attacks on Defi platforms, especially through the course of the last year,” added the economist.  

“…a significant part of the personal information and data obtained by hackers comes from attacks on Defi platforms, especially through the course of the last year.”

Economist and director of a macroeconomic consulting firm, Argentina

Such security threats will have to be tackled head on if DeFi ETF’s are to broaden their appeal. A good place to start would be to fully understand the extend to which the exchanges could be imputed at the same time that fraudsters are using the platform, extremely difficult that many such platforms require only the bare minimum of personal identification data to use them. The courts will need to lead the charge but this is a highly technically complex and murky area, change – if it comes – will take time and patience.  

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