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Compliance and Security Are the Largest Barriers to DeFi for Institutions; VALK Data Finds

New research from VALK has highlighted the concerns of institutional investors around custodial services and security regarding Decentralised Finance (DeFi), although these are somewhat diminishing following strong sector growth and increasing optimism for its future.

Its study, which surveyed professional investors working in eight major economies for institutions holding
more than $1trillion in assets, found how 54 per cent are very concerned about custodial services in DeFi, while 52 per cent remain equally concerned about security issues.

28 per cent stated how they are very concerned with regard to the regulatory environment of DeFi, while 21 per cent are concerned about risk.

However, 15 per cent of the investors questioned in the UK, US, France, Germany, Hong Kong, Singapore, Australia, and Brazil are not concerned at all about custodial services and 14 per cent have no worries about security. 11 per cent stated how they have no concerns about risk and just 7 per cent have no worries about the regulatory environment, with the majority expecting this to improve.

The research found how 84 per cent of investors expect the regulatory environment to improve over the next three years, with 12 per cent hoping for a dramatic improvement.

VALK's co-founder Antoine Loth
Antoine Loth

Speaking on the findings of its data, VALK’s co-founder Antoine Loth comments: “DeFi is undergoing rapid growth. There were less than $1billion of digital assets locked into DeFi services two years ago, and today that number is over $250billion, so it is natural that institutional investors handling billions of assets have concerns.”

Adding to this, VALK’s co-founder Elie Azzi said: “VALK expects more transparency regarding usage of DeFi protocols within the coming months and years, and with this will grow institutional interest in the use of DeFi. Our DeFi smart wallet and aggregator will not only serve crypto natives, but the increasing number of institutions from traditional finance (TradFi) that have shown interest in financing their assets from DeFi.”

In an attempt to appease investor doubt, VALK is gearing up to introduce its DeFi Smart Wallet ‘Merlin’, which is due to launch this month. The Smart Wallet provides scope for analysis on the blockchain of a user’s DeFi positions across multiple protocols. It then extracts all the transactions related to one wallet, retrieving the position of each digital asset deployed across DeFi protocols and calculating the positions (vs USD or other currency) plus yield generated.

Other information from DeFi protocols such as assets held, PNL, yield earned (daily) and portfolio value are also provided. These reporting features are missing from traditional DeFi smart wallets, but are essential for investors, especially institutional fund managers, who require daily monitoring and tracking of the net asset value and returns on investments across positions/assets in their portfolio.

VALK’s DeFi aggregator platform is a non-custodial portfolio management system for digital asset managers/funds as well as retail, enabling investors to manage their Decentralised Finance (DeFi) portfolio on one interface on a smart account. It is an API for lending and borrowing DeFi protocols, connecting financial institutions to all crypto markets and enabling a variety of yield-generating strategies to be deployed.

VALK will reportedly continue to digitise and support the deal flows for the VALK Deal platform, which involves tokenising financial assets and connecting clients to a broader ecosystem on both the buy and sell side. By doing so, the assets, both debt and equity-based, are brought on-chain and standardised due to their tokenised nature.

Ultimately, VALK aims to bridge the financing needs of its clients with liquidity across DeFi protocols. This bridge between TradFi and DeFi is now a reality following MakerDAO’s commitment to providing a scalable framework for real-world assets (RWAs) to be used as collateral within its vaults and create a credit facility to fund real-world activity.

Utilised by over 90 TradFi institutions and with $4billion worth of assets, the platform is well-positioned to
implement these bridges. This framework can be built to suit permissioned pools, where only lenders and borrowers who have undertaken KYC can take part, a huge step forward in bringing compliant institutional activity into DeFi.


  • Tyler is a fintech journalist with specific interests in online banking and emerging AI technologies. He began his career writing with a plethora of national and international publications.

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