Recurring market commentary on what’s happening in the crypto markets, summarized by the Crypto Broker team at Crypto Finance AG.
Let this sink in: A TradFi bond (tokenised) refinancing transaction conducted through a DeFi protocol.
When I went through the "MIP6 application for OFH tokens" I was amazed that this kind of transaction is compliant with current laws and regulations. Having said that, I see a few weak points (risks) that are not being addressed.
Vulnerabilities of a tokenized refinancing transaction of TradFi bond
- There is no oracle solution for obtaining the “live” price of the OFH tokens.
- The workaround is a daily collateral test that is being done by a “collateral agent” (there is no clear definition as to who that is). In the future, I envision CCPs (central clearing parties for tokenised assets: e.g. a digital Clearstream).
- The DAI/USD peg might break (what happens then?).
- Liquidation process & market liquidity. I know that this will come over time, but currently, the MKR holders (community) is bearing the risk.
Again, I am stunned by the fact that this construct is compliant with current rules and regulations. But for sure it shows the massive potential if this “bridge” (concept) is strong enough to hold for the large capital market flow that is waiting to enter the blockchain/DeFi sector.
I hope all of you on the compliance and legal front will comment on this topic, but I’d also love to hear from DeFi professionals as to how some of the risks I pointed out can be mitigated.
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