On July 25th, the "DeFi Feature Series" initiated by a chain community, DeFi Lab, DOS Network, and Hydro started the first online AMA around "Derivatives". The event went to the MARKET Protocol and Kyber. A guest, and the founder of DeFi Lab, Dai Shichao, acted as the host.
Seth Rubin, co-founder and CEO of the MARKET Protocol, has 13 years of experience as a traditional derivatives trader and market maker and entered the field of encrypted digital currency in 2015.
Anton Buenavista, a core developer of the Kyber Network, entered the field of encrypted digital currency in 2012 and was an early member of the Ethereum community in Singapore. When I was working at Intel, I was doing encryption-related projects and joined Kyber full time in 2018.
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Let's briefly introduce the two items of the MARKET Protocol and the Kyber Network:
It provides a secure and flexible open source foundation on the Ethereum network, following the ERC-20 standard, tracking the prices of any asset that can be traded on any exchange or wallet. Users can create token-derived products that represent any asset, such as Bitcoin derivatives, executed using smart contracts, without counterparties.
The first products launched by the MARKET Protocol are bitcoin options, sBTC and LBTC. sBTC is a position token representing bearish BTC/DAI. When the price of BTC drops, the value of sBTC increases. LBTC is a position token that represents multiple BTC/DAI. When the price of BTC rises, the value of sBTC increases.
MKT is the token of the MARKET Protocol and is used to pay lower fees when casting LBTC and SBTC. The second version of the roadmap MKT holders can act as verifiers to help resolve disputes in exchange for some of the costs incurred on the network.
It is a chain of high-liquidity digital assets (for example, various types of crypto tokens) and encrypted digital currencies (such as Ethereum, Bitcoin and ZCash) for real-time trading and redemption. KyberNetwork is a system that implements the ideal operational attributes of an exchange, such as no trust features, decentralized execution, instant trading, and high liquidity. In addition to exercising the functions of the exchange, KyberNetwork will also offer a variety of payment APIs to allow Ethereum accounts to easily receive payments in the form of various crypto tokens.
Although running on the Ethereum network, KyberNetwork's roadmap includes the use of relay technology and future protocols like Polkadot and Cosmos to support cross-chain transactions between different cryptocurrencies.
Core point one: DeFi market size without ceiling
1. How big do you think the DeFi market is, where are the users?
Seth Rubin: I don't think the DeFi market has ceilings. As we create new products and bring new users, we will see more and more growth. When it comes to market size, we see that the transaction value of crypto assets is about $5 billion, while the transaction volume in the traditional financial sector is $5 trillion, so it has huge potential.
Anton Buenavista: Users must first be familiar with encryption before using DeFi, so this is an extra threshold. However, we believe that encryption technology should be as popular and easy to use as currency, and we hope that users will grow over time. But in essence, I don't think there is a limit to the size of the DeFi market. As more users enter the field of encrypted digital currency, our market size will naturally grow. 2. DeFi is a large-scale application, what is missing? How to deal with it?
Seth Rubin: I think the biggest problem now is the user experience and incremental users. Some of the user experience issues are addressed through technology extensions, but in general, motivating people to use DeFi and the broader blockchain application remains a challenge. At present, most people are enthusiasts and professionals, and more people are interested in experiencing and using our products in order to be successful.
Anton Buenavista: Compared to the traditional market, the field of cryptocurrency is still very small. If traditional finance adopts and participates in blockchains, then there will naturally be large-scale adoption. At the same time, the DeFi project will continue to build solutions in the form of physical assets, cross-chain trading, expansion and more operations, all of which should be as transparent and decentralized as possible. Core point two: ETH2.0 is not a panacea
3. What are the advantages and disadvantages of doing DeFi on Ethereum? Will ETH 2.0 solve these problems? Will DeFi have a better smart contract platform and public chain environment?
Seth Rubin: Ethereum is still very important to us at the moment, and I am full of confidence in ETH2.0. Maybe in the future we will consider switching to other platforms or other public chains, but now other chains are more difficult to acquire users than Ethereum.
Anton Buenavista: The advantage of Ethernet is that it is the most popular and active smart contract platform. The downside is the need to address scalability. I don't think ETH 2.0 is a panacea for solving current problems. There are still many issues to consider, such as migrating smart contracts from 1.0 to 2.0, how they work, and so on. Of course, we also saw the appeal of other platforms, such as EOS, Cosmos and Polkadot. We may see some aggregation of platforms, but only time will prove it. 4. The ERC20 is no longer exciting. What do you think about the high liquidity of DEX when there is no perfect solution across the chain?
Anton Buenavista: We are working on a cross-chain solution, but it is still in its early stages, and that is the Waterloo bridge. It is an efficient and completely decentralized approach that will enable EOS lightweight clients through Ethereum smart contracts, as well as Ethereum lightweight clients through EOS smart contracts. This will enable cross-chain communication between the two blockchains, enabling the transfer of assets from Ethereum to EOS and vice versa.
In the long run, these decentralized bridges will be used to transport between different blockchains in order to leverage their respective unique advantages while trading across the blockchain. For example, the EOS chain has a higher processing speed and has the advantage of achieving higher frequency transactions. Ethereum is considered safer by the encryption community and currently offers more advanced financial prototypes such as DeFi. Core view 3: Interoperability is a major feature of DeFi
5. DeFi projects can be divided into two categories: transaction classes and asset classes. The essence of DeFi is smart contracts. There is interoperability between smart contracts. How do you see the interoperability of DeFi?
Seth Rubin: I think this is very important for DeFi, which means that the project can focus on solving specific problems and taking advantage of the work of other projects to drive overall growth.
Anton Buenavista: I think the DeFi project is now interoperable. We are seeing the DeFi project built on one after another. For example, the Jain brothers created InstaDapp and DeFi Saver for users to open CDPs for DAI and then put them into Compound to get interest. Interoperability is a hallmark of the DeFi protocol and project. 6. How do you see liquidity sharing? We think this is not a technical problem, but a business problem. Because if liquidity is the core competitiveness of a project, why share it with others?
Anton Buenavista: There are many ways to provide liquidity. For example, for chain mobility, there is the Uniswap model, which provides liquidity by using the on-chain to auto-market. Gnosis's DutchX provides liquidity through a Dutch auction model. Maker has a huge algorithmic ecosystem that casts and burns Dai, tied to the dollar. There are more projects that offer chain liquidity. Kyber helps provide liquidity through its reserve model, and aggregates these different liquidities into an aggregated liquidity pool that any user can access. Therefore, I think that everyone will provide liquidity in different ways.
Core point four: How to introduce more quality assets?
7. Ecology needs more quality assets. What are the key challenges in bringing BTC and cross-chain assets to the DeFi market?
Seth Rubin: In this case, we need to give people the opportunity to make more money (such as leverage, new assets, new ways), protect the funds they already have (such as decentralized custody, hedging), and then build fluidity. Of course, only the user experience is good enough to get real liquidity.
Anton Buenavista: A key question is how to prove the value of an asset in the chain if it is linked to assets outside the chain in an untrustworthy, transparent and decentralized manner. Tether offers one of the simplest solutions for anchoring dollars. But it is completely concentrated and the reserves are not transparent. The WBTC program is transparent, and anyone can check the chain's reserves. Although it is managed by a DAO, it is not completely dispersed because the BTC reserves are held by the custodian. I think the challenge still exists is to anchor more chain assets in a decentralized way. Core point five: Is there a better predictive machine solution?
8. The derivatives trading platform needs a predictive machine to provide the settlement price of the assets under the chain when the assets are delivered. How does the MPX obtain the settlement price and what solution is used?
Seth Rubin: MPX is our decentralized exchange based on the Ox protocol. Currently, our predictor is getting the price of bitcoin from Coincap (an index of many exchanges) and settles SBTC and LBTC at this price. There is a 24-hour billing window during which the settlement value is verified by the market agreement.
9. Last month, the derivative platform Synthetix was able to avoid this problem because of the asset loss caused by the oracle, and is there a better solution?
Seth Rubin: Our oracle is different from Synthetix in that no similar things happen because there is no exchange rate to set and adjust market data. The price of SBTC and LBTC is not determined by the oracle, but by the effective market. Both traders and market makers know the rules for early settlement. For example, within 28 days, we will determine the price of Bitcoin on Coincap, and then the buyer and seller will work together to determine the market price based on these rules. Then, verify the settlement as mentioned before to further ensure the integrity of the data.