In a move designed to enhance the stability and transparency of the cryptocurrency market, Darshan Vaidya of Credora and Bette Chen of Acala have collaborated with Portofino Technologies. The partnership aims to address concerns around opacity and fragility in firms similar to Celsius, utilizing what's been termed an "anti-principal-lender approach."
This new model, announced on Thursday, involves the use of Special Purpose Vehicles (SPVs) which stake DOT, a popular cryptocurrency, and hedge price risk on prominent exchanges such as Bitmex, Bybit, and Deribit.
One of the key features of this model is the use of "first loss" capital from the market maker. This approach provides additional security against potential losses, offering a layer of "bankruptcy remote" protection. This means that in the event of bankruptcy, these assets would be insulated from creditors.
Another intriguing aspect of their strategy is the involvement of validators like Coinbase (NASDAQ:COIN) Cloud for "slashing protection." This mechanism ensures that validators who act maliciously or incompetently have their staked coins reduced, further protecting the system's integrity.
The new approach aligns with Warren Buffet's "skin in the game" principle, suggesting that stakeholders should have a personal financial stake in the outcome. Future iterations of this model may incorporate different strategies or input capital such as stablecoins.
The collaboration between these industry leaders signals a significant step towards more robust risk management strategies within the cryptocurrency sector. Their combined expertise and innovative approach aim to bring increased transparency and resilience to an often volatile market.
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