Personal wallets and DeFi protocols are reliable for financial security: Blog

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Experts believe that the FTX deba­cle and the resul­tant mar­ket con­se­quences have caused high net inflows from cen­tralised exchanges (CEXs), on account of users send­ing their funds to per­son­al wal­lets. It is believed that increased new flows from CEXs to per­son­al wal­lets is con­sid­ered com­mon dur­ing price volatil­i­ty but this time insti­tu­tion­al mon­ey took the lead, as stat­ed by Chainalysis.

Accord­ing to Chainal­y­sis, funds tran­si­tion from a CEX to a per­son­al wal­let can imply either an investor is con­cerned about the CEX’s sol­ven­cy or for con­tin­u­a­tion of their trans­ac­tions. Report­ed­ly, insti­tu­tion­al funds con­sti­tute a big­ger share of trans­ac­tions between CEXs and per­son­al wal­lets. It is believed that increased insti­tu­tion­al adop­tion has result­ed in investors play­ing a more active role in fund-based trans­ac­tions between CEXs and per­son­al wal­lets. On-chain infor­ma­tion sug­gests that investors utilise funds to inter­act with decen­tralised finance (DeFi) protocols. 

On the basis of infor­ma­tion by Chainal­y­sis, devel­op­ing insti­tu­tion­al cryp­tocur­ren­cy adop­tion implies that funds tran­si­tion­ing from cen­tralised facil­i­ties to per­son­al wal­lets. Report­ed­ly, DeFi is used as a cop­ing mech­a­nism against mar­ket volatil­i­ty and is being led by deep-pock­et­ed insti­tu­tion­al investors. Investors have expressed con­cerns around per­son­al wal­lets’ rela­tion to ille­gal prac­tices, which has also been high­light­ed by cer­tain law­mak­ers and regulators 

More­over, Chainal­y­sis not­ed that from 2020 to present, under one per­cent of total funds sent to per­son­al wal­lets have come from illic­it address­es. In 2022, max­i­mum amount of funds stolen in hacks were removed from DeFi pro­to­cols, which showed bil­lions of dol­lars worth of val­ue being lost. 

(With insights from Chainalysis)

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