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How should we regulate DeFi?

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How should we regulate DeFi?

Peer-to-peer trading, face to face, eye to eye — it’s the way deals had been done for millennia, before distance and lack of trust forced us to use go-betweens such as banks and brokers to transact.

Now decentralized finance (DeFi) has taken us back to an over-collateralized future. We can transact peer to peer not only remotely but also trustlessly by interacting with a smart contract. This innovation has set the foundation for a financial renaissance that goes far beyond just replacing intermediaries.

Until recently, regulators have largely ignored this emerging parallel financial system. But with former blockchain professor Gary Gensler as chair of the U.S. Securities and Exchange Commission, D.C. has woken up. The question is: How can authorities enforce regulations that don’t rely on the presence of intermediaries? And how will the regulation protect users and the market?

Decentralization > deterritorialization

DeFi protocols might appear out of regulatory reach. Copies of blockchain transaction history are stored in nodes all over the world, ready to reappear like the many-headed hydra if one should be compromised.

Yet history provides lessons of how regulators might think they can address DeFi.

Historically, regulators have only held purview over legal entities within their jurisdiction. This changed with the extraterritorial Foreign Account Tax Compliance Act (FATCA) of 2010, which saw U.S. authorities regulating beyond their currency and U.S. persons across the world and coordinating with other jurisdictions by signing intergovernmental agreements (IGAs) for enforcement.

The EU followed a similar approach with the General Data Protection Regulation (GDPR) in 2018, writing regulations from their ivory tower to control the data of Europeans wherever they are in the world — though it remains unclear how authorities can enforce against organizations outside the EU.

Looking ahead, we could see regulators rely on similar extraterritorial methods in an attempt to reach into cyberspace and enforce regulation in DeFi.

Choke points and on-ramps

Even with extraterritorial enforcement, however, regulators would still need to identify choke points that could be used to control otherwise decentralized protocols.

These points of centralization already appear to be on the radar of regulators. As Gensler remarked: DeFi can be a misnomer, with platforms often being “decentralized in some aspects but highly centralized in other aspects.”

Individual protocols with known developers, or those controlled by corporate token holders, might be pressured to get changes pushed to the protocol. And for protocols that are as decentralized as they claim — run by distributed anonymous communities — regulators could make interaction with the protocol illegal. Or, more likely perhaps, stymie the flow of funds by targeting on-ramps or marking certain protocols as toxic.

These on-ramps could be fiat-to-crypto exchanges or stablecoins that could be forced to incorporate due diligence and know-your-client procedures to ensure compliance with anti-money laundering and counter-terrorism (AML/CFT) efforts, etc. To be effective, these future controls will need to be built with DeFi in mind. This could see the sanction list published as a Chainlink lookup or a free API call from the Financial Action Task Force (FATF) or Organisation for Economic Co-operation and Development (OECD) directly.

At the same time, individual protocols seeking to integrate with the real economy are likely to make trade-offs that work in favor of regulators.

For example, Aave‘s know-your-client versions of liquidity pools are providing limited DeFi access to institutions by using on-ramps to KYC participants. They are able to mitigate risk by relying on organizations like Chainalysis to analyze blockchains for know-your-transaction (KYT), though this comes at the cost of depth of liquidity, and doesn’t grow the pie for all participants.

Other promising solutions include smart wrapping contracts that allow verified entities to deposit funds and automatically mint “fully compliant assets” that can be used in any DeFi protocol without having to KYC each time.

On the flip side, protocols may further decentralize; as we’ve seen recently, MakerDAO shut down legal entities and relies solely on the DAO. But while these fully decentralized protocols may remain out of reach of regulators, they could also be divorced from the real economy to an extent.

With these scenarios in mind, the question becomes not how to enforce regulation but what outcome the regulations should be aiming to achieve.

How should DeFi be regulated?

As to what changes should be pushed to protocol level, we now stand at a crossroads.

There is opportunity for the appropriate level of regulation to give DeFi enough breathing space to make a difference: boosting transparency, increasing financial inclusion and enabling credit to 8 billion people that will see the world take a tremendous jump toward prosperity.

Yet there is also potential for overreach that would stifle innovation and growth and have unintended consequences. Unfortunately, we seem to be well down this path already.

What is needed is the realization that DeFi shares many of the same goals as financial regulators: overhauling inflexible processes and delivering wider access, cheaper prices and more stability — all while ensuring these benefits are widely shared with all participants in the market.

For example, access to liquidity has long been a central concern not only for cryptocurrency and blockchain projects, but for financial markets in general. As per the Bank of England’s Run Lola Run speech of 2019, there is evidence that those that are further from liquidity get a worse and worse deal.

DeFi has the potential to create fairer, more transparent and more liquid markets through completely new mechanisms, helping everyone to reduce fraud and front-running, resolving fragmentation and creating markets that are efficient, resilient, fair and equally accessible to all — not just participants that have the right connections.

Defining the right regulation could make or break DeFi, and there are big questions to be answered: How do we establish wallet scores? How do we build in decentralized identifiers (W3C DIDs)? And how can we ensure that any controls don’t work against financial inclusion?

Given such an opportunity to rebuild finance from the ground up, we need to be bold: Set clear objectives and create regulation that smooths the path to get to the new financial world — without simply settling for a faster version of what we have today.

Source: Tech

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Boston Dynamics’ warehouse robot gets a $15M gig working for DHL

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Back in March of last year, Boston Dynamics unveiled its second commercial robot, Stretch. The system, built from its impressive box-moving Handle concept, is designed to bring the company’s advanced robotics technologies into a warehouse/logistics setting – easily one of the hottest categories in robotics, these days.

Today the Hyundai-owned firm announced its first commercial customer – and it’s a big one. Logistics giant DHL has committed to a multi-year, $15 million deal (or “investment” as the parties are referring to it) set to bring the robot to its North American facilities. Specific details on the number of robots being purchased haven’t been revealed, but Boston Dynamics says it’s going to be bringing a “fleet” of the robots to DHL logistics centers over the next three years.

Stretch will get to work unloading trucks to start – a feature its creators have highlighted as a key part of its initial rollout. Additional tasks will be added, over the course of the roll out, in an effort to further automate the package handling process.

Says CEO Robert Playter, “Stretch is Boston Dynamics’ newest robot, designed specifically to remedy challenges within the warehouse space. We are thrilled to be working with DHL Supply Chain to deliver a fleet of robots that will further automate warehousing and improve safety for its associates. We believe Stretch can make a measurable impact on DHL’s business operations, and we’re excited to see the robot in action at scale.”

The partnership will be a key proving ground for Boston Dynamics’ commercial ambitions beyond its on-going Spot deployment. Package handling is an intensive, highly repetitive job that requires long hours, strain and multiple points of failure. This will be a major test for the company under Hyundai, which has sought to further its commercial ambitions.

For DHL, meanwhile, it’s an opportunity to automate some logistics roles during a time when blue collar jobs have proven difficult to keep staffed. It’s also a chance to more fully embrace automation as it competes with the likes of Amazon, which has begun steadily encroaching on the package delivery space.

Source: Tech

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Polly snags $37M in Menlo-led Series B to automate workflows for mortgage lenders

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Polly, a SaaS technology startup aiming to “transform” the mortgage capital markets, announced today that it has raised $37 million in a Series B funding round led by Menlo Ventures.

New backers Movement Mortgage, First American Financial and FinVC joined existing investors 8VC, Khosla Ventures and Fifth Wall in participating in the round. The latest financing brings the San Francisco-based startup’s total funding raised to $50 million.

Adam Carmel, founder and CEO of Polly, says the company has increased its customer count by nearly 3x over the past year, including “several of the country’s top 100 lenders.”

He founded the company in 2019 under the premise that while many industries have undergone digital transformation initiatives, the mortgage industry is still largely reliant on “the same expensive and cumbersome processes and tasks that have been in use for decades,” Carmel said. 

Polly’s mission is to fundamentally change the way lenders and loan buyers operate by giving them the ability to make data-driven decisions. The company’s software is “uniquely configured to automate customer workflows and improve execution — from rate lock to loan sale and delivery,” Carmel said.

Carmel previously founded Ethos Lending (which sold to Fenway Summers in 2014) and it was that experience that helped him conclude there were serious gaps in the market for automating workflows for lenders.

The need certainly seems to be there. For example, one company in the space is Optimal Blue, which was purchased by Black Knight for $1.8 billion in 2020. 

Carmel believes Polly stands out from others in the industry in that it is helping create a fourth category in the mortgage sector — capital markets.

“I viewed it as a sizable opportunity to build a vertically integrated software platform that would automate workflows for a mortgage company,” Carmel told TechCrunch. “My view is that over time consumers are going to expect not only a digital experience but also a mortgage product, loan and associated pricing that are customized and tailored for specific purposes.”

To that end, he added, Polly is laser focused on doing just that so that its customers “can configure individual loans as dynamically as they would like.”

“The goal is that ultimately, they are able to deliver a lower mortgage price to their consumers or to their customers while increasing their own profitability,” Carmel said. “We want to help these lenders move away from spreadsheets and telephony and email as a transaction medium, and instead do everything in the cloud. Over time, we want to be able to transition into a system of record for the customers themselves.”

Polly, he said, is able to help configure loans on a multi-dimensional basis.

The startup has increased its customer count by nearly “3x” over the past year and signed several of the country’s top 100 lenders. While it invested mostly on its product in 2021, it plans to put some of its new capital toward its go to market strategy while continuing to be “heads down focused on product.” That includes expanding its product and engineering teams and investing in AI and machine learning capabilities. 

“The next year or two is going to be a really exciting time for us,” Carmel said. “We see this as a compelling window and opportunity to really help transform the market.”

Menlo Ventures partner Tyler Sosin, who is joining Polly’s board of directors as part of the financing, believes the startup is “taking on a sector held back by sclerotic incumbents with dated, disconnected and dragging solutions” and “driving transformation and winning customers at an impressive rate.”

He said Menlo was interested in leading the company’s Series A round but “was a little bit too slow.” Impressed with Polly’s traction even at that point, the firm still participated in that financing with a smaller check and stayed close to the company.

We’ve gotten to know Adam and seen how the customers and the product and the team had evolved, so we leaned into the lead this round,” Sosin told TechCrunch.

Source: Tech

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Tinder updates its approach to handling reports of serious abuse and harassment

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As a result of its ongoing partnership with nonprofit and anti-sexual assault organization RAINN (Rape, Abuse & Incest National Network), Tinder today announced a handful of product improvements as well as training for internal teams at the dating app maker designed to better support survivors of abuse and harassment. Soon, Tinder also says its members will have access to background checks on their matches through Garbo, a nonprofit the dating app maker invested in last spring.

One key aspect of the partnership with RAINN involved training Tinder’s customer care team. Through the training, staff learned how survivors may report abuse and harassment, and how to spot reports of serious abuse — even if the reports use vague language to describe the events. The training, which is now also a mandatory part of Tinder’s onboarding and training curriculum, additionally provides instructions on how team members should respond to these types of reports when they occur.

Meanwhile, in the Tinder app, survivors will gain access to a more direct way to report someone they’ve unmatched with, even if they’ve waited some time before making their report. And they can now opt whether or not they want to receive follow-up information about actions taken, as some prefer to receive updates and others do not.

The app will also provide alternative support options, as not everyone will feel comfortable making a direct report. Through the Tinder Safety Center, a dedicated Crisis Text Line will be provided as well as the upcoming feature offering access to background checks on matches from Garbo. Tinder invested a seven-figure sum into New York-based Garbo in March 2021, which offers an alternative to traditional background checks that surface a wide variety of personal information — like drug offenses or minor traffic violations. Garbo instead focuses on whether or not someone’s background indicates a history of violence. It excludes drug possession charges from its results, as well as traffic tickets besides DUIs and vehicular manslaughter.

The Tinder Safety Center is now also accessible from anywhere in the app, reducing the number of taps it takes for a user to locate the resource.

“Our members are trusting us with an incredibly sensitive and vulnerable part of their lives, and we believe we have a responsibility to support them through every part of this journey, including when they have bad experiences on and off the app,” said Tracey Breeden, VP of Safety and Social Advocacy for Tinder and Match Group, in a statement about the changes. “Working with RAINN has allowed us to take a trauma-informed approach to member support for those impacted by harassment and assault,” she added.

Breeden, who held a similar position at Uber, joined Tinder in September 2020 as Match Group’s first-ever head of safety and social advocacy, tasked with overseeing the company’s safety policies across its apps, including Tinder, Hinge, Match, OkCupid, and Plenty of Fish.

Tinder and other dating apps have put a higher focus on member safety features after a 2019 report revealed how dating apps run by Tinder parent Match Group allowed known sexual predators to use its apps, due to the lack of background check features. Other reports have highlighted the very real safety concerns that accompany the dating app market, particularly those impacting young women — a key dating app demographic.

In early 2020, Tinder invested in Noonlight to help it power new safety features inside Tinder and other Match-owned dating apps, ahead of its investment in Garbo.

But Tinder’s changes aren’t only about protecting dating app users — they’re about protecting Tinder’s business, as well.

Tinder’s top U.S. competitor, Bumble has marketed itself as being more women-friendly, launching a number of features designed to keep users safe from bad actors, like one that prevents abusers from using the “unmatch” option to hide from victims, for example. Tinder has followed suit, launching new safety features of its own.

The company has also felt the pressure to get ahead of coming regulations impacting tech companies, like those operating social media apps and dating services. Tinder, which dominates the dating app market, today plays in social networking as well, with additions like quick chat features, an interactive video series, and other additions to its new Explore hub in the app.

“By adopting more trauma-informed support practices, Tinder will be better positioned to support members who may have experienced harm and take faster, more transparent action on bad actors,” noted Clara Kim, Vice President of Consulting Services at RAINN, in a statement.

Source: Tech

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