Original title: DeFi – Open Finance based on blockchain
DeFi (Decentralized Finance) is one of the fastest growing fields of blockchain applications in 2019. The most successful DApps on the Ethereum blockchain, such as MakerDAO/DAI, Compound, 0x, and the others we’ll look at below, aim to disrupt traditional financial services systems and usher in a new digital economy where everyone can achieve great economic freedom. This article will introduce DeFi’s role, advantages, evolution history, DApp architecture and other important concepts related to DeFi, which can help you quickly understand the hot concept of 2021 blockchain: DeFi.
Why DEFI?
However important the current financial services infrastructure may be, it is plagued by many problems. The main source of these problems is the existence of centralized, independent institutions, which make all transactions in the traditional financial system under the supervision of a third party. This deprives individual economic freedom to some extent. DeFi aims to make every ordinary person have access to autonomous and equal financial services.
The traditional financial system currently has the following drawbacks:
1. Differentiated financial services
2. Unnecessary regulation and review
3. Troubled by counterparty risk
4. Lack of necessary transparency
The existence of the above disadvantages leads to the following consequences:
The use of traditional financial facilities requires high fees, lack of assets due to geographic boundaries, bureaucratic and regulatory review issues, which make it impossible to diversify their portfolios and lead to missed opportunities. Individuals take excessive and unnecessary counterparty risks. To enable DeFi to solve these problems faced by financial institutions today through peer-to-peer finance.
How does DEFI address the above issues?
Using the most popular distributed ledger/blockchain technology, which makes DeFi significantly superior to traditional financial systems, DEFI has the following characteristics:
No permission required: everyone has free and equal access to all financial services
Audit immunity: Everyone can use all financial facilities without being subject to relevant regulations
Programmable: Each contract is pre-programmed and executed the same way for everyone
Transparency: The inner workings of the contract are fully visible on the distributed ledger, thus introducing transparency into the system
Credibility: Due to the above characteristics, the whole system can be trusted by every ordinary person
DeFi gives an average person access to their own funds and personal data. Since each contract is programmable, counterparty risk can also be mitigated. DeFi also removes the middleman from the value chain, so fees and the time it takes to complete a transaction are significantly reduced. Finally, DeFi also allows people to draw on their portfolios to obtain Passive Income.
Evolution of DEFI
The original DeFi appeared in 2008, and the credit for peer-to-peer digital cash should definitely go to Satoshi Nakamoto’s Bitcoin.
On the Ethereum blockchain, DeFi began displaying prototypes in these Dapps in 2016:
EtherDelta: A decentralized exchange platform for Ether /ERC20 tokens
WeTrust: Finacial Inclusion Based on Distributed ledgers
Etherisc: Decentralized insurance
But that’s just the beginning!
In 2017, more DeFi projects began to emerge:
DAI: A decentralized stablecoin that anchors the U.S. dollar
VariabL: Ethereum blockchain Derivative (Derivative) trading platform
EthLend: Decentralized Lending
In 2018, DeFi decentralized applications began to form an ecosystem, with different projects gradually forming a closed loop of financial services:
Augur: Decentralized Prediction Market platform
bZx: Decentralized Margin Lending protocol
dYdX: A decentralized Crypto Derivative protocol
-Compound – Compound – Compound – Compound – Compound – compound – compound – compound – compound – compound – compound – compound
Kyber Network: Decentralized Token Swap
MelonPort: crypto asset management
0x: Decentralized exchange
Dharma: Decentralized lending market based on the Daharm Agreement
Loopring: Decentralized token transaction protocol. Crypto trading and management platform Dolomite.io is based on the Loopring implementation
InstaDapp.io: indicates the combination of multiple protocols. For example, it uses Kyber to trade ETH and MKR, and then it uses the MakerDAO protocol
DEFI infrastructure for a new digital economy
Philosophically, the infrastructure of the new digital economy should be determined by user choice. Even as the number of DeFi projects grows, more investors become interested, and development tools mature, the concept of DeFi has only been adopted on a limited scale and has not yet gone mainstream. From a user-centric perspective, the DeFi project also requires usability (UX/UI) improvements and scalability improvements.
Technically, scalability is also dependent on infrastructure. For example, the Lightening Network’s method for scaling up the Bitcoin blockchain has also been used by State Channel for scaling up the Ethereum blockchain. Exploring Layer 2 (L2) solutions has become an urgent need as DeFi’s demands on transaction throughput have exceeded current network capabilities.
Another technical aspect to consider is robustness. QukiNode helps DApp reach 24/7 service capacity without having to deploy its own Ethereum nodes. Reliability is one of the most critical features to consider when building a financial DApp, as is immediate access to blockchain data without any delay. QuikNode provides an environment in which Dapps run reliably, with a trusted, powerful, and proven web3 infrastructure.
The DeFi dApp ecosystem is rapidly maturing. DeFi has the potential to go mainstream when cross-chain operational issues are resolved, scaling capabilities are increased, and usability is improved. Web3 development tools have come a long way, fast and reliable access to the Web3 infrastructure is no longer a dream, and the future of this new digital economy that DeFi has laid the foundation for will have a profound impact on the average person in this world.
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