Some ideas make so much sense, they have to happen, and one of those is AllianceBlock. Launched late in 2020, Alliance Block is a multifaceted, blockchain-agnostic protocol enabling banks and clients to safely and legally trade any crypto product.
Founder and CEO Rachid Ajaja began his career as a quantitative risk analyst at Barclays, BNP Paribas and Moody’s Analytics. He began investing in cryptocurrencies in 2016 and immediately saw problems; the lack of investor protections fostered many a scam. Given the decentralized nature and novelty of the system, it would be folly to expect regulators to jump to address it, so why not involve the early adopters instead?
“Why not create a decentralized investment platform with milestone-based financing where we give the control to the community?” Mr. Ajaja asked.
The crypto winter then fell but interest from big banks did not, Mr. Ajaja noted. They saw the potential in tokenization and ICOs but regulations prevented them from diving in. If he could build a bridge between traditional finance and DeFi by adding a compliance layer, Mr. Ajaja believed he could do his part to bring DeFi to the mainstream.
AllianceBlock is built on three pillars. The first addresses regulators by creating a trustless KYC layer that gives control over data to the user. That would provide a pre-compliance check which would enable people to participate around the globe.
Rachid Ajaja
The second is data. The data channel and testnet is live with the Ocean Protocol and is an oracle of oracles, serving as an aggregator of different protocols. It takes data from them enriches it and returns it, all the while allowing easy access for participants.
The final element is the DeFi technology, which provides amazing opportunities for traditional finance, Mr. Ajaja said. Investors with little knowledge of cryptocurrencies can participate in DeFi by depositing funds into an account, which converts them into stablecoins, allowing them to participate in decentralized exchanges. The trustless layer provides transparency for all and protects them from AML risk.
“It’s exactly how we can build investment banks or traditional financial institutions with the current technology,” Mr. Ajaja said.
This is a significant development for all financial institutions, but especially the smaller ones, he explained. They can spend as much as 10 per cent of their total revenue on compliance. With AllianceBlock they can significantly cut those costs while actively and safely participating in DeFi.
“If they want the money, trillions of dollars, to move from traditional finance to DeFi and they will benefit from it you need to have tradeoffs. The tradeoff is being able to have this layer of compliance,” Mr. Ajaja said.
Successfully complete the trustless KYC verification and the investor is free to participate in projects across the spectrum. It’s really only the beginning too, Mr. Ajaja said.
AllianceBlock’s technology provides familiar territory which will allow traditional players to enter the space and grow the pie.
“If you want to play with the big boys sit and their table, don’t invite them to sit at the new table,” Mr. Ajaja said. “Because they’ll never do it. You need to play by the rules. Instead of waiting for the regulations to come to crypto why not basically use the current financial regulations and apply them to crypto?”
He also sees increased liquidity for a group you might not immediately think of. High net worth individuals: this group is asset rich but cash poor, banks provide some liquidity for some of these assets like real estate backed loans and Lombard loans but they do not want more exotic assets like art , jewelers and other physical assets. As these assets are hard to value and represent a risk on the balance sheet of the banks, a risk they are not willing to take.
“You can have huge opportunities especially for banks,” Mr. Ajaja said. “Through DeFi products they can extricate themselves from complicated physical assets loans, while still increasing their AUM with no risk on their balance sheet. This risk will be transmitted to crypto lenders and funders allowing them access to non crypto correlated returns with low probability of default.”
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