NFT finance Leveraging Non-Fungible Tokens

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NFT finance Leveraging Non-Fungible Tokens ( nft-finance-leveraging-non-fungible-tokens )

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However, the locked collateral in a CDP is exposed to risk of currency fluctu- ation. Flash loans can be used to mitigate this risk without having the new asset by borrowing it and then closing the CDP. Immediately, a new CDP can be created with a different underlying asset to minimize losses from currency market fluctuations. • Flash Minting: ERC-20 tokens can be minted and flash minting would enable instant minting of that ERC-20 token in a single transaction. The would be a momentary increase in the supply of the token and then the coins would be destroyed. It is a possible use case, with an application that is yet to be determined. [46] 2.3.6 Decentralized Financial Crisis Throughout the different attacks and big arbitrage opportunities, drawbacks of DeFi protocols have been exposed. [47] In case of sudden price drops of the assets locked in DeFi, overcollateralized protocols show deficiencies. What is worse is that the failure of protocol can impact other dependable pro- tocols and lead to additional losses. As explained in [47], an attack on MakerDAO could have broader implications on other protocols such as Uniswap, Compound and more. The composability of DeFi could have financial contagion in case of an attack that can lead to a DeFi crisis. In case an asset becomes under-collateralized and it is used as collateral on another platform to issue a new asset, it would lead to the other asset being under- collateralized. A simple example would be the scenario of DAI becoming under-collateralized. In this case, cDAI, which is Compound issued DAI would also become under- collateralized. While DeFi is setting out to improve on regular financial instruments, it might fail to respond to high stress scenarios and in the face of malicious participants. 2.4 ISDA The International Swaps and Derivatives Association (ISDA) is a trade organization that aims to improve the global derivatives market by making it safer and more efficient. They were created in 1985, have more than 900 member institutions from 72 countries and their work focuses on reducing counter-party credit risk, increasing transparency and making the derivatives industry more stable. [14] They have created the ISDA Master Agreement, which is the most used blueprint for creating over-the-counter (OTC) derivatives and executing these transactions. This document has been updated over the years to keep up with current needs and technological advancements as well as cover any issues later exposed. 18

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