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Secure bridges, tokenised real-world assets and growth of DeFi: Q&A with Adi Ben-Ari
Home > Interviews > Secure bridges, tokenised real-world assets and growth of DeFi: Q&A with Adi Ben-Ari
Global Banking and Finance Review
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By Adi Ben-Ari, Founder and CEO of Applied Blockchain
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 commodities 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 London Bridge, a solution that bridges Algorand with Ethereum and other EVM chains to enable seamless integration and bi-directional 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 top companies to advise, design, and build innovative solutions. Applied Blockchain serves customers in DeFi, web3, NFTs, cryptocurrency, financial services, trading, energy, commodities, supply chain, telecoms and government. Clients include Shell, also an investor, United Nations, KLM, Toyota, Vodafone, Opulous, Aorist and Algorand. The company has a global presence, with offices in London, UK, and Porto, Portugal.
There’s a lot of talk about blockchain bridge security. What does Applied Blockchain offer to consumers in the way of protection?
Blockchain bridges, or token bridges, are applications that enable people to move tokens from one blockchain to another. They effectively create interoperability between blockchains, allowing assets to be used on multiple blockchains. Token bridge solutions represent the future of a truly global and universal blockchain ecosystem.
The bridges in place at present enable greater liquidity, but the level of security on some is questionable. The $320 million hack on the Solana Wormhole bridge in February and an attack on the Ronin bridge in March show that hackers have identified a weak link: many bridges work by locking assets in a pool on one blockchain, while minting equivalent “wrapped” tokens on a second chain. The theft by syphoning off $540 million worth of Ethereum and USDC stablecoin from the Ronin network involved targeting and draining one such pool, and was one of the biggest heists in the history of cryptocurrency.
What do you say to critics who claim that these recent hacks illustrate that crypto inoperability is fundamentally flawed?
I would say that security in blockchain technology, and bridges in particular, is evolving, and that 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 opposite is true, and all of the security is provided by the blockchain software itself. This means that it is completely exposed to attacks on the one hand, yet the cryptography alone secures the blockchain on the other. This property is also what makes blockchain so open, efficient, transparent, and special. Token bridges come in many designs, and the security model of bridges will vary from solutions where a single operator with a key to all the assets must be trusted, to fully trustless models where no intermediary can interfere in the process nor access or steal the assets.
Algorand and Applied Blockchain are collaborating on a trustless bridge system, called London Bridge, that will initially incorporate the security properties of Intel’s hardware security enclave (SGX), and will use a new cryptography feature called state proofs, when those become available, to extend the trust and security that these solutions need. “Trustless” means there’s no need for the participants involved to know or trust each other or a third party for the system to be secure. We are building this important piece of infrastructure, and SGX and the state proofs are really a solid way of extending trust and building these bridges securely with the technical integrity that they need.
We see growing interest in tokenisation of what are referred to as “real-world assets”. What are the benefits of this and how do you see it evolving?
It’s fair to say that the growth in interest in tokenised real-world assets has been explosive over the past 12-18 months. NFTs sales last year were worth $25 billion; in the first quarter of 2022, sales have reached $33 billion.
Of course, the vast majority of those assets are natively digital crypto assets, but so-called real-world assets are beginning to be explored. Real estate is perhaps the biggest potential growth area, but we’re seeing the tokenisation of assets such as gold, vintage wine, traditional art, music rights, concert tickets, and many more.
Why the popularity? Well, the traditional banking and financial services sector isn’t particularly efficient. The legacy infrastructure and systems make existing players less agile, less consumer-centric, and more expensive. Trading in tokenised assets is faster, cheaper, and in some ways very secure, offering a potentially wider range of product types – including traditional bonds and equities – and wider geographic and demographic reach. So, what’s not to like about it?
The DeFi industry has established itself and is growing quickly. How to you see it developing?
DeFi is already well established and growing fast, having grown from a peak of $17bn in 2020 to a peak of $255bn in 2021(4). People are becoming more familiar and confident in this way of doing things.
Exactly why is it proving to be so popular?
On popularity, let me elaborate a little on my previous answer.
During the course of the pandemic, the world became more digital and more open to investing in digital assets. From what we see, it has been driven mostly by Gen Z and millennials.
The rationale is simple: in their lifetime, the existing financial system has not served them particularly well. They have experienced the financial crisis of 2008, multiple financial and accounting scandals, including the Panama Papers and Paradise Papers disclosures, and various trade wars. Their interests have not always been served. In addition, they are very digitally savvy and already used to managing their digital lives through their own devices.
Alongside all that, many have a greater risk appetite now, perhaps reflecting fewer ways to generate decent returns. Near-zero interest rates and rising inflation make fixed income far from appealing. Cryptocurrencies offer more volatility which offers the prospect of more upside, as well as downside, and that clearly presents opportunities, even though it’s 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 appealing.
DeFi allows, for example, funds to be lent according to a predefined policy, collects repayments with interest, handles tokenised collateral, and distributes interest to the investors. If you add the capability of bringing real world assets into it then the applications are endless, and this can be applied to markets like real estate, invoice financing, and assets lending, among others.
The traditional financial industry has finally met its true disruptor in DeFi and although this space has a substantial path to cover, mainly due to regulation, it still is very appealing for consumers in general and that’s why it is moving quicker than most people expected.
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