In a panel discussion organised by The ETMarkets Conclave, Miloni Bhat, Editor of Digital broadcast at ET, spoke with Ashish Anand, Founder of Bru Finance; Pranav Sharma, Founding Partner of Woodstock Fund; and Sumit Ghosh, CEO and Founder, Chingari where they shared an insight of their outlook on the opportunity that will unfold in the said risk involved with the blockchain technology.
The year 2020 saw the rise of Decentralised Finance (Defi), a fantastic new crypto industry that grew to prominence. While staking, yield farming, Defi, NFTs are the recent buzz words. However, there is also a notable risk involved in the newfound world of blockchain. The decentralised finance segment has grown with the rise of interest in crypto assets. India, however, has experienced a sudden boom.
Opportunities of investments amidst the risk
Anand said that he holds a bullish stance for the merger between the gaming industry and metaverse in future. Defi is going to be the connecting link between the real world and blockchain.
Capital Market and Defi will converge in the upcoming future, where real-world assets will be tokenized. One of the biggest examples of this is non-fungible tokens (NFTs). Apart from this abstract, things will also be priced. The young generation is trying to build a future where liquidity can flow with just a click of a button, Sharma explained.
Around 25 Defi projects were delisted recently, which led to many people who invested in the projects losing billions. This raises the problem of how to manage the risk involved for investors. Anand mentioned that the majority of projects are based on a short-term vision and suggested that investors need to keep a long-term perspective to counter risks.
Investment and Yield Farming
For an investor, it’s imperative to segregate between projects and a startup. While a project is just a toolbox, a startup has a well-defined structure, which will function no matter what, Pranav said. Multiple projects can collectively act as a well-functioning machine. But standalone, they can’t hold much gravity, he added.
While investing, Pranav isn’t always focused on who is the founder of a startup. Instead, he has a procedure to follow before any investment where he checks the underlying problem a startup is solving, the roadmap ahead, the addressable market, and the legal aspects of it. All these factors decide whether the startup is going to give value in future and build a strong phase-locked loop (PLL) or not. Eventually, the risk is mitigated.
Ghosh, the founder of Chingari, a short video-sharing social media platform, says, “The Cardinal rule of investing, let alone investing in crypto is DYOR i.e Do Your Own Research. As we see, off lately thousands of crypto projects have come up so there has been a FOMO amongst the investors, especially the new investors to invest in these projects. Amidst the noises across social media platforms, a new investor must research the projects, their objectives, future plans etc. This information is available in the Whitepaper, well only if the projects are genuine.”
Defi – Hackers and Cybercrimes
Anand believes that part of the reason for this complication is also the speed of hacking. Business sometimes hurries their roll-out process, which leads to vulnerability.
However, regulators wouldn’t be able to do much in controlling the vulnerability. But, after the speed of innovation is stabilised and so will the system, things will start to fall into their place.
2020 witnessed high money laundering done through Defi. But Pranav said that like every coin has a good and a bad side, so does the Defi system. But if we look at the numbers, you will find that the bad factors are marginal in comparison to the good factors.
Once the regulations and compliances become sharper, it will lead to bad factors becoming even more marginalised. By making transactions traceable, Defi has solved the biggest challenge in curbing money laundering.
He talked about the FATF Crypto Guidance to bring the crypto industry in line with the banks.
The Financial Action Task Force (FATF), an anti-money laundering agency (AML), has released updated guidance for firms that handle cryptocurrency and virtual assets. The existing regulatory framework appears to be designed to corral much of the nascent industry.
Social Media on Web 3.0 vs Social Media on Web 2.0 – Creators’ Benefit
Ghosh explained how a social media platform based on Web 3.0 offers an advantage to its user in comparison with Web 2.0.
Earlier social media platforms like Facebook, Instagram, Twitter based on Web 2.0 owned the content created by its creators, while the social media based on Web 3.0 offered ownership to its creators by giving them tokens, he added.
The original content created by the users is available in the form of NFT. These NFTs can be minted anytime, and the creators can continue to keep their ownership for eternity and earn royalty in the form of tokens every time their NFTs (Content created) gets used, he further explained.
Chingari has a subsidiary token named ‘Gari’, which can be minted via Solana.
Social Media on Web 3.0 has also propagated a new algorithm that scrutinises content before it appears on someone’s feed. The appearance of content will also depend on the credibility earned by creators. He claimed to be trying to create a trusted, trustless system of social media.
Ghosh further added that crypto projects should have strong tokenomity. It is important to give the contributors a fair amount of tokens instead of just focusing on a project’s VC.
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Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.