Categories
Crypto Videos

The Craze Behind DeFi – Explained!

 

The Craze Behind DeFi – Explained

There are many reasons that the DeFi sector has been experiencing a surge of interest lately.
First off, we need to mention that the regulators have been behind the curve in terms of DeFi, which has been able to flourish in this vacuum. As an example, in traditional unsecured lending, a legal requirement that lenders and borrowers know one another’s identities exists. On top of that, the lender always assesses the borrower’s ability to repay their debt. In DeFi, on the other hand, there are no such requirements. Instead, every part of the process is about mutual trust and preserving privacy.

Regulators always have to weigh the delicate balance between deterring innovation and failing to protect society from risks. In July, the US SEC made a major shift towards embracing decentralized finance by approving an Ethereum-based fund called Arca.
This is welcome and extremely important since one of the major challenges with financial innovation is the hostile environment that is created by archaic regulations. This had caused many cryptos and DeFi projects to fail, including major ones such as Basis, which returned $133 million to investors back in 2018 when it concluded that it couldn’t work within the SEC rules.


The second reason for the DeFi craze is that mainstream players are not-so-slowly and surely getting involved. Many financial institutions are beginning to accept DeFi, as well as seeking ways to participate. Seventy-five of the world’s biggest banks are now trialing blockchain technology to speed up their payment system as part of the Interbank Information Network, led by JP Morgan, Royal Bank of Canada, and ANZ. Even though most of these banks are testing centralized versions of blockchain, this is one step closer to DeFi than the current system.
Major asset management funds are starting to get interested in DeFi seriously as well, with the most prominent one being Grayscale, the world’s largest crypto investment fund.

The third reason for the craze is the effect of COVID-19. The pandemic has evidently driven global interest rates even lower, with some jurisdictions, such as the eurozone, now offering negative interest rates.
DeFi potentially offers much higher returns on investment to savers than high-street institutions. As an example, Compound has been offering an annualized interest rate of 6.75% for people that save with stablecoin Tether. Not only do you get the interest, but you also receive Comp tokens, which adds to the attraction of this offer. With as much as two-thirds of people without bank accounts having a smartphone, DeFi also has the potential to offer its services to the so-called unbanked.

One final reason for the surge in people putting money into DeFi projects is FOMO – fear of missing out. Many tokens are worth nothing or very close to nothing in terms of their utility, so we see a lot of irrational investment and pure speculation. But, people see certain tokens rise in value exponentially and want to turn their life around as well.
Like it or not, we are certainly heading towards a new financial system that will be more liberalized and decentralized than before, and DeFi will be at the forefront of these changes.

Categories
Crypto Daily Topic

Benefits and Drawbacks of Blockchain in Philanthropy

Donating to charity brings a heartwarming experience in knowing that you’ve helped improve someone else’s life. It could be a fundraiser to help settle a hospital bill, feed the homeless, or even raise money for environmental causes. But, have you ever stopped and considered where your donations end up?

Unfortunately, charitable giving is not as charitable as one would wish. A good number of fundraising organizations are overwhelmed with mismanagement and bad records, which results in lost funds. Others are outrightly fraudsters whose intentions are to siphon funds from unsuspecting donors. 

In a report from UK’s The Guardian news outlet, global development workers admitted that 2 to 5% of funds raised in charities are lost to fraud. This translates to losses of $276 million from a total of 7.46 billion intended for humanitarian aid in a single year. Some organizations have even agreed to dissolve after being found guilty of embezzlement of donors’ funds. 

As the public’s trust in charities declines due to numerous scandals, there’s a new player on the scene poised to change the face of charitable donations forever. This is blockchain technology. 

Where Blockchain can make a difference

Blockchain, a distributed ledger system, can resurrect the image of charities in the following ways: 

1. Promote transparency and accountability

One of the most attractive features of Blockchain for philanthropists is that it makes it possible to trace all the donated funds. All the donated funds are recorded in a distributed ledger, making it possible for donors to monitor the entire sequence of transactions. As such, a donor can be sure the funds will reach the intended recipient, which in turn promotes accountability from the organizations. 

Also, every transaction in the blockchain network is cryptographically encrypted, rendering it immutable. This means that entries cannot be modified but can only be updated by adding new transactions. Not only does this offers unparalleled transparency, but it also minimizes the wastage of funds, thereby building trust between donors and an organization.

An excellent example of a blockchain-based donation system is Charities on the Chain, designed by China’s e-commerce giant – Alibaba. The system accepts donations from customers and allows auditors, the media, and the donors themselves to track information on how the donations are used. 

2. Reduce administrative costs

Besides fraud, charities grapple with expensive administration costs that eventually eat into the total amount for money raised. Sure, some of these overhead costs are unavoidable, such as office supplies and employee salaries. However, expenses such as those incurred when transacting with financial intermediaries can be brought down. Through smart contracts, the intermediaries involved can be reduced, in turn lowering the administration costs. For example, when donating, funds are often sent to a financial institution, which later sends them to the charity organization after taking a cut off the raised amount. Smart contracts can facilitate direct transfer of funds from donors to an organization while also ensuring that the charity receives the funds once certain objectives have been achieved. 

3. Facilitate fast and affordable transactions

Sending donations via traditional banking channels is usually expensive, especially for cross-border transactions. Also, during the transaction, the funds are subjected to taxes in addition to other deductible expenses. However, Blockchain can be used to facilitate the transfer of funds from the donor to an organization at a reduced cost with minimal red tape delays. Moreover, every transaction is recorded on a public ledger in real-time. This, in turn, helps decrease the cost of annual reporting on a charitable organization’s budget, while increasing its overall transparency. 

The donation process becomes even more efficient if an organization uses a native cryptocurrency/token to raise funds. Cross-border transactions will be efficient without a minimal daily limit, as it is the case with conventional money transfers. On the downside, using cryptos to raise funds means that charity organizations will be subjected to capital tax gains. This is especially true in countries such as the United States, where they are treated as assets. Also, digital currencies are usually volatile, which can lead to loss of value. To mitigate this risk, charities can consider accepting stablecoins that are less volatile

Potential Risks of using Blockchain in philanthropy 

Despite the advantages, there are few concerns to be considered when adopting blockchain technology in charity organizations.  

i) Regulatory pressure

Although blockchain technology has been around for more than a decade, policymakers are still trying to understand the long-term implications of this technology. So, it’s uncertain how they’ll choose to regulate it. Additionally, for organizations looking to accept cryptocurrencies as donations, they’ll have to bear with unfair tax laws imposed on digital assets. 

ii) Ease of use

Blockchain solutions work differently from traditional systems and are more complex than the latter. As a result, charity organizations face an inevitable learning curve when exploring Blockchain’s potential. As such, besides the high cost of application of blockchain solutions, organizations will also have to spend more resources on training their staff on how to use these solutions. 

iii) Security

While blockchain technology is inherently secure, smart contracts are prone to bugs, which can create security loopholes. Hackers, therefore, can exploit bugs on the code resulting in loss of funds. 

Also, the loss of private keys can as well lead to the permanent loss of funds. Not to mention that the same keys could land in the wrong hands.

Conclusion

It is beyond doubt that blockchain technology has the potential to redefine philanthropy and bring in the much-needed transparency and accountability. But before implementing this technology, charities will need to evaluate the cost of implementation, in terms of finance and management, and then weigh these costs against their charitable objectives. It is crucial to note blockchain technology is not necessarily appropriate for all operations in an organization. There already exist traditional infrastructures that can process transactions efficiently or even better than blockchain solutions. 

Categories
Ichimoku

The Three Principles – Price Principle

The Three Principles – Price Principle

This will be the shortest article over the three principles, mainly because it is the same as many other Western styles of price projection. I do not need to go into any significant detail here. If you want further detail into this method, I would suggest Nicole Elliot’s book, Ichimoku Charts – An Introduction to Ichimoku Kinko Clouds (2nd Edition).

Elliot identified four price target methods from Hosada’s work: V, N, E, and NT. Elliot does mention that she (myself included) does not use this analysis and relies instead on traditional Western methods. However, she does cite that for investors and traders with short time horizons that this Japanese method of the Price Principle is superior to many techniques.

 

V Price Target

V = B + (B – C)

Inverse: B – (B+C)

Price Principle - V Price Target
Price Principle – V Price Target

 

N Price Target

N = C + (B – A)

Inverse: C – (B + A)

Price Principle - N Price Target
Price Principle – N Price Target

 

E Price Target

E = B – (A – B)

Inverse E: B + (A + B)

Price Principle - E Price Target
Price Principle – E Price Target

 

NT Price Target

NT = C + (C – A)

Inverse NT: C – (C – A)

Price Principle - NT Price Target
Price Principle – NT Price Target

 

 

Sources: Péloille, Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.