Trade Wars

Secure Bridges, Tokenized Real-World Assets, and the Growth of DeFi: Q&A with Adi Ben-Ari

By Adi Ben AriFounder and CEO of Blockchain applied

Adi Ben-Ari, Founder and CEO of Applied Blockchain

What does Applied Blockchain do?

Applied Blockchain is a leading blockchain development company building applications ranging from NFT marketplaces and DeFi protocols to a commodity exchange.

Applied Blockchain is preparing to launch two new products for the web3 world. SilentData is a privacy-preserving oracle connecting web3 with web2 data sources. The second product is SilentBridge, a solution that connects Algorand to Ethereum and other EVM chains to enable seamless integration and two-way liquidity flows.

What kind of companies do you have as clients?

Since its launch in 2015, Applied Blockchain has been selected by some of the world’s largest companies to advise, design and build innovative solutions. Applied Blockchain serves clients in DeFi, Web3, NFT, cryptocurrency, financial services, commerce, energy, commodities, supply chain, telecommunications, and government. Its clients include Shell, also an investor, the United Nations, KLM, Toyota, Vodafone, Opulous, Aorist and Algorand. The company has a global presence, with offices in London, UK, and Porto, Portugal.

There is a lot of talk about the security of blockchain bridges. What does Applied Blockchain offer consumers in terms of protection?

Blockchain bridges, or token bridges, are applications that allow users to move tokens from one blockchain to another. They effectively create interoperability between blockchains, allowing assets to be used across multiple blockchains. Token bridge solutions represent the future of a truly global and universal blockchain ecosystem.

The bridges currently in place allow for greater liquidity, but the level of security on some is questionable. The $320 Million Solana Wormhole Bridge Hack in February and an attack on the Ronin Bridge in March show that hackers have identified a weak link: many bridges operate by locking assets in a pool on one blockchain, while minting equivalent “wrapped” tokens on a second chain. The theft by siphoning $540 million from Ethereum and USDC stablecoin from the Ronin network involved targeting and emptying one of these pools, and was one of the biggest heists in cryptocurrency history.

What do you say to critics who claim that these recent hacks illustrate that the inoperability of cryptography is fundamentally flawed?

I would say that security in blockchain technology, and bridges in particular, is evolving, and these incidents are unfortunately part of that process. It is important to remember that unlike traditional software services, blockchain is not protected by corporate firewalls or large IT departments. The reverse is true, and all security is provided by the blockchain software itself. This means that it is completely exposed to attacks on the one hand, but cryptography alone secures the blockchain on the other hand. This property is also what makes the blockchain so open, efficient, transparent and special. Tokenized bridges exist in many designs, and the security model of bridges will vary from solutions where a single operator with one key for all assets must be trusted, to completely trustless models where no middleman can interfere in the process or access or steal the assets. .

Algorand and Applied Blockchain are collaborating on a trustless bridge system, called SilentBridge, which will initially incorporate the security properties of Intel’s Hardware Security Enclave (SGX), and use a new cryptography feature called Proofs of State, when they become available, to extend the trust and security that these solutions need. “Untrusted” means that the participants involved do not need to know or trust each other or a third party for the system to be secure. We’re building that important infrastructure, and SGX and proof-of-state is really a solid way to extend trust and build those bridges securely with the technical integrity that they need.

We are seeing growing interest in tokenizing so-called “real-world assets”. What are the benefits and how do you see it evolving?

It’s fair to say that the growth in interest in tokenized real-world assets has been explosive over the past 12-18 months. NFT sales last year were worth $25 billion; in the first quarter of 2022, sales reached $33 billion.

Of course, the vast majority of these assets are native digital crypto assets, but so-called real-world assets are beginning to be explored. Real estate may be the biggest area of ​​potential growth, but we are seeing the tokenization of assets such as gold, vintage wine, traditional art, music rights, concert tickets and more. ‘others.

Why popularity? Well, the traditional banking and financial services sector is not particularly efficient. Legacy infrastructure and systems make existing players less agile, less consumer-centric, and more expensive. Tokenized asset trading is faster, cheaper, and in some ways very safe, offering a potentially wider range of product types – including traditional bonds and stocks – and wider geographic and demographic reach. So what’s not to like?

The DeFi industry has established itself and is growing rapidly. How do you see it evolving?

DeFi is already well established and growing rapidly from a peak of $17 billion in 2020 to a peak of $255 billion in 2021(4). People are more and more familiar and confident in this way of doing things.

Exactly why is it proving so popular?

Regarding popularity, let me expand on my previous answer a bit.

During the pandemic, the world has become more digital and more open to investing in digital assets. From what we see, it was mostly worn by Gen Z and Millennials.

The reasoning is simple: during their lifetime, the existing financial system did not serve them particularly well. They experienced the 2008 financial crisis, multiple financial and accounting scandals, including the revelations of the Panama Papers and the Paradise Papers, and various trade wars. Their interests have not always been served. In addition, they are digitally savvy and are already used to managing their digital lives through their own devices.

Along with all of this, many now have a greater appetite for risk, perhaps reflecting fewer ways to generate decent returns. Near zero interest rates and rising inflation make fixed income securities less than attractive. Cryptocurrencies offer more volatility, which offers the prospect of more upside, as well as downside, and clearly presents opportunities, although not necessarily for the faint-hearted.

As an infrastructure, DeFi is very efficient. It fully automates basic financial services, with reduced operational and intermediation costs, which is why it is so attractive.

DeFi allows, for example, to lend funds according to a predefined policy, collects repayments with interest, manages token collateral and distributes interest to investors. If you add the ability to embed real-world assets to it, the applications are endless, and this can apply to markets such as real estate, invoice finance, and asset lending, among others.

The traditional financial industry has finally met its true disruptor in DeFi and although this space has a substantial way to go, mainly due to regulation, it is still very attractive to consumers in general and that is why it is evolving more quickly than most people expected.

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