Bitcoin Cannot be Regulated Because it is a Software and There is no Legal Entity Behind it

Crypto Veteran. Tokenization, DeFi and Security Tokens – Blockchain.

Ishan Pandey: Hi Denko, welcome to our series “Behind the Startup.” Please tell us about yourself and the story behind Reef ?

Denko Mancheski: Hi Ishan, thanks for having me and I’m excited to share the story and vision behind Reef. I am the CEO and Co-founder of Reef and before starting the company, I worked at Viewly and Adelphoi as CTO. Speaking about Reef, Reef is a reliable, extensible, efficient and fast blockchain built on Substrate to make DeFi, NFTs and gaming easy to use for newcomers. It started out as a Global Liquidity Aggregator, Smart Yield Farming Aggregator, and Smart Asset Management platform designed to make it easy for beginners to get started with yield farming.

Now Reef Chain is the most advanced Ethereum VM-compatible blockchain. It’s self-upgradable and has on-chain governance. Its infrastructure also allows for EVM extensions which allows for native token bridges, scheduled calls (i.e. recurring payments), and smart contract in-place code upgrades. It will support an additional VM in the near future, which will allow developers to write code in multiple programming languages. The network runs on a Nominated Proof-of-Stake (NPoS) consensus mechanism, offering scalability and low fees.

Ishan Pandey: Decentralized finance is cutting-edge and a little mysterious to outsiders. The Bank of International Settlements is recently forming a committee to analyze crypto-assets exposure to the banks. According to you, do you think DeFi protocol hacks could have a considerable impact on the real economy in the future?

Denko Mancheski: That’s an excellent question. For DeFi startups, cybersecurity is the key to survival as cyber-attacks are rampant. DeFi protocol Cream Finance lost $130 million and DeFi lender bZx suffered a hack of $55 million. Imagine a DeFi protocol managed by global institutions with $30 billion in total value locked – imagine if such a protocol gets hacked. It will definitely have an impact on the real economy. DeFi is the future, but we are not just even starting out when we look at the larger picture. DeFi protocols will take over the traditional financial markets and is going to be exciting, and cybersecurity will be one of the major aspects of success.

Ishan Pandey: Although the crypto markets are witnessing dramatic exponential growth, privacy and interoperability issues continue to persist. What are your views on governance tokens and regulating DeFi protocols?

Denko Mancheski: Governance tokens are essential for DeFi protocols as it makes the protocol decentralized and allow for the community to run the project. According to the regulators, a software protocol is not a security if it is completely decentralized with no legal entity tied behind it. Therefore, governance tokens are going to be the bread and butter of ensuring decentralization and decentralized governance. Bitcoin cannot be regulated because it is a software and there is no legal entity behind it. Regulating DeFi is a tough job, but regulators are coming after DeFi. The FATF, in its recent update on FATF recommendations regarding VASP, has mentioned that DeFi protocols may fall under the definition of VASP, if the software and the legal entity have a commercial nexus. Therefore, it will be necessary for DeFi protocols to create a framework where the fees generated from the protocol do not benefit the legal entity behind it. Further, it is important to note that regulators regulate software and regulate the legal entities behind it.

Ishan Pandey: The idea of decentralized finance is now being recognized as a critical shift in the way financial markets operate. In what ways has DeFi affected the traditional financial market and according to you, how can banks leverage smart contracts?

Denko Mancheski: The banking institutions are 10 years behind and it will be very risky for banks to leverage smart contracts right now. Smart contracts are still at a very nascent stage and a lot of development and testing is required before banks and traditional institutions start applying smart contracts. Further, if the bank starts experimenting with smart contracts, they will be tested in a sandbox environment.

Ishan Pandey: Numerous decentralized finance (DeFi) protocols operating on Binance Smart Chain (BSC) have been hacked in recent months while the industry continues to project significant growth in 2021. How can these DeFi exploits be tackled? Further, what are the best practices for cybersecurity regarding smart contracts?

Denko Mancheski: There is no way to tackle DeFi exploits except having a good cybersecurity framework. It is critical to test smart contracts in the production environment and […]

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