Source: blockchain.news
In a recent working paper, the Bank for International Settlements (BIS) examined the inner workings of decentralized finance (DeFi) and created the DeFi Stack Reference (DSR) model to highlight the capabilities of the technology, as well as the dangers. potential associated with it. .
The research offered some suggestions for how the risks associated with integrating DeFi with mainstream finance could be assessed. He also explored this integration.
In the study, a substantial amount of technical depth was devoted to the analysis of the architecture, technical primitives, and functions of DeFi protocols. As the authors noted, “a comprehensive understanding of DeFi is still lacking in many circles,” and because of this, “a specialized framework for enhanced operational knowledge of the technology” is required.
Despite this, we believe that DeFi is an important development as it makes use of cutting-edge technology that has the potential to influence the future of the financial sector.
The areas of algorithmic automation, “competitive financial engineering” and transparency “are of interest well beyond the cryptocurrency markets,” according to the report.
The writers were referring to composability when they were referring to competitive engineering. Composability is the process of integrating smart contracts to build complicated and unique financial solutions.
The DSR model separates DeFi into three levels: the interface, the application, and the settlement. Within each of these layers, there are sub-layers that allow for the variety of DeFi technologies.
To illustrate their points, the study used many different types of tokens, blockchains, and financial services.
The authors went into great detail on the Race on Terra (LUNA) because of its informational value and because it served as an example of how successful their research approach was.
This working paper was published during the same week that an overview of decentralized autonomous organizations was made available. world economic forum (FEM).
Because the WEF publication was equally comprehensive but lacked a technical focus, the two publications extremely complement each other.
Central banks, in which the BIS participates, routinely conduct research on digital currencies.
It has taken a very conservative stance towards cryptocurrencies.
It recently placed a 2% cap on the total value of crypto assets that banks operating globally can hold in reserve. This limit will take effect on January 1, 2025.
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