BlackRock Executive Stresses Importance of Knowing Counterparties in DeFi for Institutional Engagement

It is critical for financial institutions to know who they are trading with when using decentralized finance (DeFi) protocols, asset management giant BlackRock’s head of strategic partnerships, Joseph Chalom, has said.

“The first issue is, who am I trading with? […] We go to jail, if we don’t know who we’re trading with,” Chalom told the audience during the State of Crypto Summit hosted by Coinbase and the Financial Times on Thursday in New York.

The news was first reported by CoinDesk.

Chalom added that issues such as DeFi’s so-called automated market making, often shortened AMM, are just fig leaves that are used instead of traditional central order books.

“We need clear understanding of who is in a [liquidity] pool,” the BlackRock executive said.

Chalom’s description of the strict regulations that financial institutions face when they participate in markets may help explain at least part of the reluctance among traditional firms towards the crypto and DeFi sector.

Not surprisingly, however, the core principle of user privacy in DeFi remains a major obstacle in this regard.

BlackRock is the world’s largest asset manager, with nearly $8.6 trillion under management as of the end of 2022.

The firm sponsors a large number of exchange-traded funds (ETFs), and recently applied to list its own spot Bitcoin ETF, raising hopes in the community that such an investment vehicle can finally be approved by the Securities and Exchange Commission (SEC).

Because of its huge size, deep political connections, and recent entry into the Bitcoin ETF space, DeFi developers may want to listen carefully to what BlackRock has to say if DeFi is to gain wider institutional acceptance.