Case Studies

Decentralized finance (DeFi)

Problem:

While decentralized finance is an innovative and perspective solution, aiming to remove the middleman and create more competitive market conditions, DeFi applications seem to face a never-ending cycle of hacks & loss of funds, decreasing the appeal for investors to lend their money, in fears of losing it all. Moreover, while the perspective of combining security tokens and decentralised finance applications seems promising, most companies or individuals are avoiding the creation of security tokens due to several reasons:

  • Unclear regulatory frameworks provided by different countries (such as, what is a security token, how it should be regulated, etc.).
  • Difficulties implementing a thorough compliance (ensuring that tokens get traded only by verified investors in secondary markets, etc.).
  • With reasons mentioned above, many cryptocurrency exchanges are avoiding the listing of tokens that might resemble some aspects of security tokens (preventing a wider adoption and thus discouraging from the development).

Solution:

The mission for Mintlayer is to create a more sustainable, all-inclusive and more secure environment for financial markets. To achieve this mission, one of the decisions for technical architecture was to implement non-Turing complete smart contracts. This by-design approach substantially reduces the risk of any possible attacks, such as the dForce hack or Uniswap hack, thus increasing the safety of funds for all users of the network, when participating in decentralised finance applications.

When creating a token, the token issuers are given the option to select whether a token they create is a security, and define other parameters for the token, including the Access-Control-List (ACL) which allows only users recognised by identity providers to trade that token. More sophisticated constraints might be implemented, depending on the specific need (whitelisting or blacklisting certain addresses, locktime conditions, multisignatures, limited amounts per transaction).

Lastly, a regulatory compliant framework for Security Token issuers in Europe is provided by RBBLab, working together with San Marino authorities. It would empower anyone who follows clear guidelines with the possibility to create tokens that can operate without a hassle.

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