DeFi's Dilemma and Change

Source: Chain Catcher

Author: Wang tree

Unauthorized, declined to reprint

DeFi is one of the hottest concepts in the blockchain industry in 2019.It is generally understood as decentralized finance, that is, a financial system built on a distributed network, especially some well-known financial projects in the Ethereum ecosystem.

Since this type of DeFi is completely based on the on-chain assets and smart contract operation, it is not necessary to be interrupted by the accuracy and validity of the off-chain information for the time being, so it has become a scenario where the application of blockchain is progressing rapidly. Currently, it involves decentralized lending, Centralized trading, stablecoin and many other fields. According to DappTotal data, as of January 11, the total value of DeFi lockups has reached $ 936 million.

Of course, the industry still has different understandings of the definition of the concept of DeFi. For example, the founder of DeFi Labs, Dai Shichao, told the chain catcher that she is more willing to call DeFi as distributed finance or open finance, because the logic of decentralization will With its huge ecological vision and narrowing of actual value space, DeFi as an application needs to enter people's lives.

DeFi, as the financial system of the cryptocurrency market, benchmarks the traditional financial system to a certain extent. Although it is in a 100 billion or even a trillion blue ocean market, it is limited by the difficulty of interaction with the underlying public chain, single collateralizable assets, and cumbersome product operations. The problem is that it is currently only popular among a small number of cryptocurrency user groups, and its development is still difficult.

According to multi-party interviews and analysis by the chain catcher, the current development of the DeFi industry mainly has four levels of difficulties, and many corresponding solutions have emerged, but still need more exploration.

At the first level, since users use cryptocurrencies to participate in DeFi differently from simple behaviors such as purchases and transactions on exchanges, this requires users to know how to create wallets, manage private keys, perform signatures, and other operational processes, and the intelligence involved in them. The concepts of contracts, mortgages and loans are more understandable, and it is more complicated for beginners to operate.

In response, many DeFi project development teams have launched solutions. For example, the Force Agreement also tried to solve the trouble of users' mastery of mnemonics by launching H5 website Pawn (pawn shop) cloud encrypted financial services. The project CEO Lei Yu told the chain catcher that the Force Agreement launched several experimental products last year, but due to the process of exploration and accumulation of experience, and did not do large-scale promotion, the user activity level is not ideal.

DeFi ecological leader MakerDAO is trying to cooperate with a centralized trading platform to open more and simpler DAI channels for users, but this model will undoubtedly give way to the concept of decentralization.

Dai Shichao believes that the DeFi team on the market is mostly programmer-driven and can only optimize product design and use thresholds as much as possible. There are some technological breakthroughs, but the effect is not great. Real outbreaks need to be in harmony with the people. Product improvement is only one aspect.

On the second level, the mutual circulation of high-quality assets in different mainstream blockchain networks is not a small problem. For example, in the lending and transaction scenarios, different assets such as BTC, ETH, and XRP are required for convenient circulation, that is, chains and chains need to be implemented. Interoperability, but the current cross-chain technology is immature.

Especially for decentralized exchanges, because many decentralized exchanges built on Ethereum cannot achieve anchoring with assets such as BTC, users can only purchase assets issued on Ethereum. Due to the lack of many high-quality assets, many decentralized exchange users are complaining that they cannot find the trading pairs and assets they want to use.

At present, many teams in the industry are already trying. The most mainstream solution is to map different types of assets to a specific blockchain network through locking. For example, imBTC launched by imtoken, which anchors BTC through 1: 1. The issued Ethereum Token allows holders to freely transfer, redeem, and exchange, which makes BTC indirectly obtain interoperability with smart contracts and use it for users in Ethereum's decentralized transactions and financial services. Similarly, Binance Public Chain has adopted a similar solution in its decentralized exchange.

But in essence, cross-chain technology can really solve this dilemma. "This year, we will actively expand cross-chain technology to bring other high-quality asset users outside the Ethereum ecosystem to our products. At the same time, through in-depth cooperation with project owners, we will seize its own user base." Lei Yu told the chain catcher.

At the third level, as a business with strong financial attributes, compliance endorsements have a significant impact on its prospects, but the situation is not clear today. Especially in some DeFi scenarios, off-chain data coordination is required, but many important off-chain data require compliance to be used.

"The core issue of revitalizing traditional resources is still compliance. You need to deal with supervision. There are a lot of contacts and skills. In addition, getting external recognition of the underlying public chain is also a big problem. These are things outside the product. It takes a long time to think. "Dai Shichao said.

"We have registered a financial technology service platform in the Seychelles to provide technical support for product operation. At the same time, we are also actively paying attention to the regulatory policies of various countries for DeFi services and strive to respond in the first time." Lei Yu told the chain catcher, In view of the anonymity of the DeFi business at this stage, it is difficult to control the behavior of a single user. Therefore, the identity system will be the premise of achieving the traditional asset on-chain, or the premise of compliance.

At the fourth level, there is a bottleneck in the performance of the underlying public chain that supports the development of the DeFi ecosystem, which further limits the business development of DeFi. "In the development and promotion of products, the imbalance between too many confirmation steps on the chain and user efficiency is also the biggest technical bottleneck at present. In addition to the congestion of the Ethereum network, the user's friendliness to the product is not very good. Lei Yu admitted.

In fact, the public chain is the underlying foundation and the DeFi application is the superstructure. The two are interdependent in nature. The development of DeFi cannot be separated from the public chain, coupled with other external problems such as lack of assets, cumbersome operations, compliance, etc., the project party may Only by working hard on products can we gain one or two in the market competition in 2020, such as product design precision, product safety, user-friendliness and other aspects.

As for the next industry trend, Lei Yu believes that the risk of hacking of the entire industry will increase in 2020, and a hacking team, security team, project team and other parties will gradually form a game situation on security issues.

In any case, the future of DeFi is long, and 2020 is still just the beginning.