Crypto Meltdown Calls for a Decentralized Compliance Layer to Protect User Interest

Extreme volatility has rocked the cryptocurrency market over the past few weeks. A steep fall in digital asset prices has occurred. The entire market cap, surpassing $3 trillion at its peak during the bull cycle, has dropped below $1 trillion.

Because crypto is still a young market, high volatility is expected. This volatility is what makes crypto attractive for investors as well as 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.

We saw this time, however, that crypto’s significant drop in price was caused by a lack of risk management strategies by many of the largest names in the sector.

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. According to experts, it was a liquidity problem, which is a typical banking problem.

Celsius Network, which was valued at $3.5 billion in Series B financing round last year, raised $400 million. In October 2018, the cryptocurrency lender was able to access $25 billion from over 1.7 million users. This figure dropped to $11.8 billion last month.

This is not only a spooking tactic for investors, but it also catches the attention of lawmakers and the administration during periods of economic uncertainty.

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.

You Need a Better Solution

The centralized lender Celsius worked much like a bank by using crypto deposits from more than a million customers. It also invested them in DeFi, but it did not provide proper risk management nor safety precautions 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 example of a decentralized solution, providing a compliance layer to the Web3 economy.

DeFi has seen an increase in interest for undercollateralized loan. While they have the advantage of having no central control they also carry significant risks such as a lack in asset liquidity and immediate 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.

Astra Network combines the strength of Web3.0 with traditional financial systems to achieve the next generation of decentralization. It aims at becoming the biggest network in the sector.

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.

The Decentralized Compliance Layer

Astra’s network is designed to meet the global demand for cryptocurrency and all regulatory requirements.

These regulations are offered in a variety of DeFi protocols, to assure users that all their investments will be protected without revealing their identities.

Astra also provides its infrastructure to governments and treasuries in order to issue financial products, such as CBDC bonds that are regulated and sustainable and other instruments. This allows them to take advantage of the amazing yield offered by 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.

Astra created a Decentralized Legal Network (DLN) to provide best KYC/AML service. This network includes major global law and audit companies.

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.

Vast Network

Astra does not just offer compliance. Astra offers many other services including enhanced vetting, AML and reporting to provide feedback for improved processes and procedures.

These services are in high demand as more people enter the sector and the capital is rising. There are many issues facing the sector, like lack of certainty about smart contracts and recurring derivative contractual disputes. Also, there is high risk in linking real-world assets to blockchain. Claims disputes can also be a problem.

Astra is a market leader with customizable services. These include security for retrieving transactions that are incorrect, creation of secure escrow account to stop unexpected withdrawals and a legal layer decentralized to protect users. Insurance protocols can also be equipped with an integrated claim verification tool.

Astra, through its KYC and KYB services and AML for decentralized entities, aims to make sure that every DeFi platform and cryptocurrency platform keeps up with ever-changing regulations.

 

Pixabay Image: Gerd Altmann

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