DeFi Platforms Can Be Evaluated through These Risk Measurement Models

Alexander Salazar
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DeFi Platforms Can Be Evaluated through These Risk Measurement Models

Analyst Chris Blec shows how to evaluate the security characteristics of DeFi projects. An open-source scheme analyzes the centralization and financial risk of the protocols.

Now more than ever, the decentralized finance (DeFi) ecosystem has been the object of study and in-depth analysis, after learning of the attack suffered by the platform bZx. This event highlighted how decentralized these systems can be or how much centralization many of these projects still have.

During all this discussion, it is possible to see people concerned with informing users about how much risk they run when they use decentralized platforms, what that they should know and which one they should trust. This article aims to show two models that allow users to determine how much risk they run when they operate in the DeFi sector.

Last February, Renowned analyst Chris Blec published a document in which he presented an overview of the operational security that exists around wallets.  Users use said wallets for various decentralized applications (dApps).

Renowned analyst Chris Blec published last February a document in which he presented an overview of the operational security that exists around wallets used for various decentralized applications (dApps).

Operations Security (OPSEC) is a process that identifies friendly actions that could be useful to potential attackers. If these criminals analyze them properly and group them with other data, they can reveal critical information or confidential data. OPSEC uses countermeasures to reduce or eliminate adversary exploitation.

Based on that criterion, Blec studied the methods that thirteen DeFi projects have deployed to keep funds safe from hackers. He evaluated eight features, including time lock, multi-signature security, and other details about administrator keys.

Blec found in several protocols of the DeFi projects that he evaluated that almost all of them have private keys that grant administrative rights. This allows changes and improvements to the smart contract, which puts users’ funds at risk, in case that power falls into malicious hands.

Measuring Exposure to Risk

Given that risks are not always clearly visible and are often difficult to interpret for the average user, there is a way to measure them, using DeFi Score. It is a community-driven standard to assess the risk of operating on decentralized lending platforms.

The model bases on a score that allows assessing the risk of operating in each project. This measurement takes into account various influencing factors, such as smart contract risk, centralization risk, and financial risk.

The model qualifies each of these characteristics using a score ranging from 0 to 10. The scheme represents a useful alternative to assess risks, at a glance, and without the need for technical knowledge. Even though ConsenSys initially released it, DeFi Score is now open source.

Depending on the platforms where people use them, the most popular asset types (DAI, USDC, and WBTC, among others) receive their classification accordingly. A score of 10 is the best as it indicates that an asset has no risk. On the other hand, a score of 0 indicates a significant degree of risk and, consequently, that people should avoid the asset (or platform) at all costs.

Regarding smart contract risk, the analysis is based on determining the security of the underlying code of a lending platform. This score allows users to determine how proven a protocol is, as well as what type of systems exist to continuously eliminate flaws in the smart contract code. In other words, this takes into account smart contract auditing, bug bounty programs, and formal verification.

The other characteristic that this scheme evaluates is financial risk. This is about how the mechanisms behind a platform’s financial instruments work. This takes into account variations in areas such as liquidity, instrument volatility, and collateral requirements.

The assessment of collateral risk, for example, consists of examining two pieces of data, both of which derive from those in the chain. The first point is the 30-day exponential moving average (EMA) of the collateralization ratio. The second point is an analysis of the guarantee wallet using the CVaR (Conditional Value at Risk) model, also known as the expected deficit model, according to its website.

By Alexander Salazar

Binance Updates Its Platform to Accept Latin America’s Fiat Currencies

Alexander Salazar
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Binance Updates Its Platform to Accept Latin America’s Fiat Currencies

Binance introduces the possibility of making exchanges on its platform using the local currency of Mexico, Colombia, Brazil, Peru, and Argentina.

A new update on Binance’s P2P (peer-to-peer) platform will allow the buying and selling of cryptocurrencies with at least 5 new types of fiat coins. The countries that will benefit from this incorporation are Mexico, Argentina, Colombia, Peru, and Brazil according to what the platform announced on its official website.

Since last Wednesday, March 18th, Binance enabled the possibility of using Mexican, Argentine or Colombian pesos; Peruvian soles; and Brazilian reals for the purchase of any of the available cryptocurrencies. Now, Latin Americans in these countries can use their local currency to acquire Bitcoin, Binance Coin, Tether, Binance USD, and Ether.

The statement emphasizes that all transactions made with these fiat currencies on Binance’s P2P platform will have zero commission. Besides, Binance mentioned it offers many services for its users in these countries.

This exchange also pointed out that this new alternative will allow those interested in cryptocurrencies to buy what they want with their local currencies, as well as it will allow customers to be able to plan their exchanges using what is most convenient for them.

Binance specified some of the virtues of the P2P platform. In this way, the company discussed that users now can select the different exchange rates, as well as the merchant with whom they wish to make the exchange.

In a recent interview with Changpeng Zhao, who is CEO of Binance, he recognized the importance of the Latin American crypto market. He assured that they closely monitor the growth and adoption of cryptocurrencies in that region. The emergence of new business models in these countries may be attracting potential investors and large companies that are interested in cryptocurrencies. 

Zhao said that these countries have increased their interest in this technology. This is why Binance is making significant efforts to provide better services for them.

“Latin America is one of the most active regions for cryptocurrency trading, and peer-to-peer trading is widely used in the Latin American community. To better serve users’ large demand for crypto, we are offering an open marketplace with the best P2P trading experience”, the executive said.

The World Economic Crisis and The Current Crypto Currency Market

Zhao also talked about the current cryptocurrency market situation. When asked about the impact that could generate the global economic crisis caused after the recently declared pandemic disease, Covid-19, the executive mentioned that the risk has been growing during March 2020.

According to Zhao, Binance experienced broad growth in the first two weeks of the month, reaching more than USD 100 million in exchanges on its platform. Hence, cryptocurrencies “continue to be a favorable asset with great potential use despite their price volatility”, he noted.

In recent years, Latin America has had great growth in terms of the use of crypto assets. That region has covered an important cryptocurrency market that is usually provided thanks to methods such as the P2P platform offered by Binance or other platforms such as Localbitcoins, Localcryptos or Cryptoway.

However, Binance is seeking to capture the attention of the different markets on the continent. Thus, in the words of Josh Goodbody, Director of Growth and Institutional Business of Binance for Latin America, there is more work to do.

Goodbody ensures: “We understand that each country requires a different approach and requirements, but as cryptocurrency markets mature, Binance will extend its presence in the region looking to expand further”.

With the launch of this new form of exchange with extensive currency management, Binance hopes to have a better acceptance from users in Latin America.

By María Rodríguez

Ethereum Records Warning about Coronavirus by Censored Chinese Doctor

Alexander Salazar
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Ethereum Records Warning about Coronavirus by Censored Chinese Doctor

Dr. Ai Fen states that the authorities repressed her in December when trying to warn about the virus. Some journalists think that networks like Ethereum are an alternative to mitigate censorship.

Sarah Zheng is part of the team at the South China Morning Post, the main English-language newspaper in China.  The Chinese journalist posted on Twitter that she is making an effort, along with some Internet users in that country, to preserve a censored interview on the Ethereum blockchain. That is the case of Dr. Ai Fen, who the authorities ignored after she issued an alert about the coronavirus.

Zheng includes screenshots that describe how they secured the document on the Ethereum network, whilst they encrypted some excerpts through QR codes. Other efforts have allowed saving the interview in PDF format and even in Morse code, aiming to ​​continue its dissemination, even after the Communist Party of China censored the article.

The March issue of the medium Renwu includes the interview with Dr. Ai Fen, which the authorities removed from WeChat, the Chinese WhatsApp-like messaging system. Zheng said that the measure prevents people from sharing the document about the early alert about the virus through the social networks, according to the English-language medium form Singapore The Straits Times.

In the Ethereum-protected interview, Dr. Ai Fen states that she was subject to severe repression after trying to warn about the results of a patient’s tests, in which she observed signs of the “Sars coronavirus.” Even though she shared the data with colleagues and urged them to take precautions to fight the virus, the authorities subsequently sanctioned her for “spreading rumors” and “damaging stability.”

Even Dr. Li Wenliang sent early warnings about the seriousness of the disease and denounced the conditions in which doctors have to work in that country. However, she was also a victim of retaliation from the authorities, which caused the population to call for political reform and freedom of expression.

Blockchain to Mitigate Censorship

Journalists and citizens had found on Chinese social networks a new space to post truthful information on cases of corruption by officials. The solution had become an alternative as they did not need to undergo official controls.

However, the Chinese government has recently launched a new censorship campaign to “combat rumors on the Internet.” This has led to the imprisonment of some people accused of spreading them, as well as to the closure of websites.

Under Xi Jinping’s presidency, critical journalists and reporters have virtually disappeared, whilst the authorities harass and imprison dozens of them. The Chinese press is full of optimistic portraits of life under Xi, which his detractors call the “era of total censorship.”

The blockchain ecosystem has proven to be useful in many aspects of everyday life. For instance, the technology served in 2018 for the MeToo campaign to overcome the Chinese government’s censorship on a sexual abuse case.

Chinese students were demanding justice in the case, but their messages started to disappear from social networks. For that reason, they decided to conduct a transaction on the Ethereum network and thus hung an open letter about Gao Yan’s case.

In that way, they discovered that, as with the case of Dr. Ai Fen’s alert about the coronavirus, there was an alternative to criticize the Chinese government’s censorship.

By Alexander Salazar

What to Say When Children Start Asking about Bitcoin

Alexander Salazar
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What to Say When Children Start Asking about Bitcoin

Samuel, who is nine years old, studies fourth grade and is already curious about the first cryptocurrency. He knows that it does not physically exist, recognizes what a cold wallet is and understands its purpose.

Children’s curiosity is an enriching constant that motivates them to learn more about what they hear, see and feel. By nature, they want to know where things originate and the reason for them to occur.

This is the case of Samuel, a 9-year-old boy who is not satisfied with what he learns in school. He has started to show interest in diverse fields such as science, space, sports, and even Bitcoin and other cryptocurrencies.

In his family, there are engineers, journalists, and teachers, who always try to answer his doubts. His questions, which have various levels of complexity, include “Why is this a leap year?” “What is the coronavirus?” and “What is Bitcoin?”

Regarding this last question, Samuels’ father replies that “Bitcoin is like a big family that is all over the world.” He tells his son that “each member has a function that contributes to creating more Bitcoins.” He also says that “people can send them, receive them, spend them or save them.” He explains to Samuel that “all of them use computers, the Internet and electricity to make transactions secure, rather than instantaneous.” He concludes his answer by saying that “it is a digital work that they do together.”

Without fully understanding, Samuel listens to the rest of the explanation. Then he becomes aware that Bitcoin does not exist in physical form but “people can keep it in cold wallets.” This leads him to ask, “Why do they call them ‘cold’?”

His father answers him that “people don’t call wallets ‘cold’ due to their temperature. They do it because they help keep bitcoins secure and disconnected from the network.” He compares them to “flash drives that, instead of photos, movies or school assignments, people use to save their bitcoins’ secret keys so that they can take them anywhere.” Of course, Samuel’s father is thinking about the possible next question.

The moment arrives and Samuel asks his father, “What if I lose the pen drive with the bitcoins?”

To that question, his father explains that “there are some super special words called ‘seed words’ that people use to restore the bitcoins from the previous cold wallet to another one.” He told his son that “they have to print or write those words on paper and keep them in a safe place in order not to lose the savings.”

Thinking about some relatives in other countries, Samuel asked, “Can we send money to my uncle in Chile and my grandmother in Colombia?”

His father gladly replied that they could “send bitcoins to them or anybody else in those countries.” He added that they could “even send any amount of bitcoins to any part of the world because the system allows it.”

After listening to those answers, Samuel also analyzed the cash and coins that circulate in all countries. He said that they resemble those of his Monopoly game, in which he almost always goes bankrupt when playing with his sister, but that the bank “always has money.” His father explains that one of the rules of that game is that the bank should not run out of money and, in case that happens, the bank has to print new bills.

Of course, that led to the question, “Can you make more bitcoins if they run out?”

Trying to express his ideas clearly, he said that “when Satoshi Nakamoto created the Bitcoin system, he established a cap of 21 million BTC, so no more bitcoins can be created.” He noted that there are “hundreds of new bitcoins every day and more than 18 million are already in circulation.”

Samuel’s experience with his father shows that Bitcoin can arouse interest at an early age. Even though it is a topic that involves technicalities, economic theories, politics, and technology, parents should illustrate it in such a way that they can understand it more easily.

By Alexander Salazar

Fall in Bitcoin’s Price to USD 4,600 Leads to a 14% Loss within 24 Hours

Willmen Blanco
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Fall in Bitcoin’s Price to USD 4,600 Leads to a 14% Loss within 24 Hours

Some altcoins have lost more than 20% within a few hours. Only two cryptocurrencies in the top 20 fell less than 10% in recent days.

The pandemic of the new coronavirus or COVID-19 has led to a situation that markets still resent. Bitcoin, the main cryptocurrency, has lost more than 14% within 24 hours and, after a slight rebound, it is currently in the vicinity of USD 4,850.

Data from CoinMarketCap indicate that, at the beginning of the period described above, the price of BTC was above USD 5,300 and fell to USD 4,612. In other words, the fall has caused Bitcoin to lose almost USD 700 in its price within a day. The decrease is even greater, considering that Bitcoin recently reached above USD 5,800 at its highest point.

Recently, the main altcoins have also suffered a significant within two days. The top 20 includes all cryptocurrencies with a market capitalization greater than USD 400 million. This list shows that Tezos (XTZ) has been the most affected, with a 28% drop, followed by ChainLink (LINK), with a 27% fall.

Among the most recognized in the market, Ether (ETH) shows losses of more than 15%, close to USD 106, its lowest point so far in 2020. Meanwhile, Litecoin (LTC) has fallen by 14% and Monero (XMR) has lost nearly 20%. From that list, only Huobi Token (HT) and Unus Sed Leo (LEO) have depreciation rates of less than 10%.

The recent movements of the market have changed the positive trend that Bitcoin had earlier this year, along with the expectations of the halving, the next reduction of mining rewards by half. Therefore, BTC has fallen below its “fair value” just for the fourth time in its history. That metric, developed by analysts at Coin Metrics, establishes a relationship between market capitalization and the initial price of unspent or “hold” coins.

General Fall of Markets

Last March 16th, for example, saw a further general decline in the main markets. Oil prices add to cryptocurrencies, with the WTI barrel, the main reference in the US market, falling below the USD 30 mark, with a 7% drop. Besides, the OPEC basket and the Brent fell by more than 6% within a few hours.

The further decline in the markets even affected gold with about 3% of value loss. Currently, the precious metal is trading at less than USD 1,480 per ounce, whilst silver has lost more than 10% of its price, standing at USD 12.77 per ounce. The indices from stock markets in Hong Kong, China, Japan, United Kingdom, and the European Union have also suffered significant losses in this context.

All this behavior of the markets occurs after the US Federal Reserve (Fed), and various central banks worldwide after it, announced an emergency easing of its interest rates, in addition to a bond policy for about USD 700,000 million.

In response, investors have chosen an exit to less risky assets and actors involved in Wall Street have questioned the actions of the Fed. For example, the head of the market strategy at the firm JonesTrading, Michael O’Rourke, considered that the Fed “panicked” and the market is “afraid” accordingly.

By Willmen Blanco

Toyota Takes Advantage of Blockchain Technology to Store Vital Information

Maria Rodríguez
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Toyota Takes Advantage of Blockchain Technology to Store Vital Information

The company is evaluating the use of blockchain technology to improve the supply chain of raw materials, as well as to facilitate the commercialization of automobiles

The renowned Japanese automobile company Toyota announced it started working on blockchain solutions to store important data. The name of this new plan is Toyota Blockchain Lab, and it will be possible thanks to the collaboration of subsidiary companies specialized in the matter. The tests will soon begin in conjunction with the collaborating corporations and 6 companies that belong to Toyota.

One of the main objectives of Toyota is to create tools that facilitate the promotion of innovative technologies. For this reason, the company seeks to implement blockchain technology as part of the “Women City” macro project, the renowned smart city plan. The idea of Toyota is to become a “mobility company”, using current technologies.

Although the development tests begin at this moment, the subsidiaries officially launched the Toyota Blockchain Lab in mid-April 2019. Some of the subsidiaries that participated are Toyota Motor Corporation and Toyota Financial Services Corporation.

The company offered data that shows that the laboratory is divided into four research and creation areas. Among them is the BUILD project, a tool that belongs to an identity management program that will use blockchain technology.

Currently, some services manage the identity of each person when registering on different platforms. In this way, it can be cumbersome to conduct each registration in all the tools necessary for the operation of new technological solutions. This can be time consuming and money consuming.

However, implementing a decentralized blockchain-based system can ensure a single registration system that goes from one form platform to another with the authorization of the user. This would help service providers to offer a more secure system and prevent hacking incursions. For the user, it would be a way to facilitate the control of the tools, their registration, and their personal information.

A Record of the vehicle’s Parts

Another way of using blockchain technology could allow knowing and controlling the situation of each vehicle. All of this, keeping a record related to the parts handling, repair, and change operations in a platform visible and shared only by authorized parties.

In this way, the vehicle manufacturing company, the insurance company, and the user could store the history of each car without running the risk of losing the information.

Some data that could store the blockchain platform is information such as the owner’s identity documents, mileage, repairs, and shared uses. Having this information could help to create a valuation of the vehicle that can help during the sale of the car.

The use of this technology could still open a vast field of solutions and tools that can help make life easier for users. Some of these applications can help with instant payment of tolls, instant payments for parking lots, permission to share the vehicle with another user or a simple traffic license update process.

Another possible use of blockchain technology is helping the company to take greater control of the supply chain by creating a history of movements with companies that supply raw materials, among others. This is something that can also assist Toyota in vehicle distribution and marketing.

Different Uses of Blockchain Technology

Toyota also talked about an option that it has been evaluating to implement blockchain technology. It would be possible to digitize the value of the vehicles, allowing them to “tokenize the property”. This would help in the contracting of services and leases.

Although this is part of different plans that the company is evaluating in development and research, company spokespersons highlighted their commitment and motivation to improve these solutions.

Toyota already has more than 3 years developing an assembly plan for an entire blockchain system that allows updating its services and improving the efficiency of its products. Blockchain technology could be a support for all these plans to become true.

By María Rodríguez

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