Decentralized finance (DeFi) is the undisputed driver of the crypto world’s latest growth spurt. Decentralized exchanges (DEXs) and liquidity pools experienced their fastest surge ever in the most recent quarter.
The problem is, serious questions around price integrity have also arisen during the recent growth spurt - including in this corner of the market - as manipulation attacks and other issues reveal poor controls and weak data validation.
‘Flash Crash’: a chart reveals the pricing incident on Deribit’s trading platform on 31st October 2019, at around 21:00 UTCSource: Deribit
These incidents reflect one of the crypto world’s greatest (and oldest) conundrums: how to establish the price of an asset, like Bitcoin, at any given time. For one thing, there may be around 500 entities operating as crypto exchanges world-wide. As the number of DEXs also increases, the proliferation of trading venues can only accelerate. This expansion poses an obvious dilemma: it fails to address the lack of established and guaranteed pricing standards for digital assets. In fact, as the crypto boom continues, it follows that the problem is getting worse. The key implications of this lack of standards are outlined below.
For the crypto sphere as a whole, the overriding impact is undermined confidence. And if confidence is weakened among existing users, it won’t be inspired among late adopters whose participation is crucial for crypto growth to continue.
Solutions that promote price integrity are the obvious remedy. The question is, how can crypto companies secure the most advanced price intelligence?
BlockFi, one of the fastest-growing DeFi leaders, has discovered a highly evolved answer. BlockFi’s platform enables crypto holders to earn interest on their token assets. It also offers loans backed by clients’ crypto collateral. Recognizing its critical need for rock-solid price verification and regulatory adherence, BlockFi recently adopted the crypto pricing framework created by CF Benchmarks.
CF Benchmarks’ pricing methodology includes parameters to deal with erroneous prices, problematic exchange book issues, calculation failures and more, consequently achieving robust, verifiably time-accurate pricing. Here’s an outline of some of the key parameters:
The robustness of CF Benchmarks’ methodology has been demonstrated by the CME Group’s adoption of the methodology for its cash-settled Bitcoin contract. Now, BlockFi has established a lead in its own industry by opting for CF Benchmarks’ methodology as well. With the realm of decentralized, distributed finance likely to continue evolving at a rapid pace—with attendant risks—BlockFi’s decision is set to be vindicated as ever more astute and far-sighted.