To break the bottleneck of DeFi development, where is the open financial path? | Babbitt Cloud Summit

In the extreme market of "3.12", the transcripts delivered by DeFi were not very satisfactory. The three mountains of liquidity, risk control and governance are insurmountable, and Ethereum may have become the main bottleneck in the development of DeFi. This time we are facing the bottom dilemma, and the public chain is battling with each other. Who can become the next generation of DeFi infrastructure? Where is the open financial path?

On the afternoon of April 13th, the wind will rise again. 2020—Babbitt Global Partners Cloud Summit will hold the seventh forum event. The theme of this forum is " Breaking the bottleneck of DeFi's development, where is the open financial path? " Held by Babbitt reporter Helen , invited many guests such as David Lei, Pan Chao, Brother Tiao, Hu Zhiwei, Liu Qiushan , etc. Participate in discussions together.

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Guest introduction:

David Lei : Co-founder of The Force Protocol & ForTube, open finance research and advocate. Participated in the early mining of Bitcoin in 2011, and systematically researched blockchain technology and crypto economy since 2016.

Pan Chao : Head of MakerDAO China, one of the earliest members of the Maker Foundation, participated in the theoretical research and realization of monetary policy.

Brother Tiao: ChainLink China Community Director. Master of Software Engineering, Xi'an Jiaotong University, early investor in blockchain. Since 2013, he has begun to pay attention to and research on blockchain, and has been active in multiple technical communities at home and abroad.

Hu Zhiwei : Research Director of IRISnet, responsible for technical research and related ecological development. He used to be the chief technical analyst of Huobi Blockchain Application Research Institute and the project director of Yifan Financial Technology Company.

Liu Qiushan : Senior Researcher of Biyuan Chain, former Research Assistant of the Computer Department of the University of Hong Kong, the first batch of IBM super ledger developers, engaged in PBFT research and basic research and development. The topics discussed in this forum are relatively rich, from DeFi hotspot events to stablecoins, from DeFi risk control to community governance, and the five guests took their projects as examples to share the experience and views from the frontline of the industry. The following is a selection of live content, complete video playback:

Talk about DeFi hotspot

Helen: How to evaluate DeFi's performance under the extreme market conditions of "3.12"?

David Lei : Through the recent extreme plunge, we have seen performance bottlenecks on the Ethereum network, which has led to a surge in network transaction rates. After the chain reaction, the MakerDAO auction mechanism did not operate as expected, and a liquidation robot bidding attack occurred, causing a devastating blow to many CDP holders. Originally, when the liquidation mechanism was normal, the liquidated person can still get back part of the ETH. As a result, in this accident, because the attacker bid 0 DAI / ETH and successfully executed, the liquidated person's ETH was maliciously liquidated, completely loss.

Fortunately, with the exception of MakerDAO, most DeFi applications did not expose problems in this plunge. Even the decentralized trading platforms DEX such as Uniswap and Kyber set a new high in trading volume, showing a vigorous vitality.

Afterwards, we saw that after the short-term plunge, the price of Ethereum stabilized, and the community of crypto assets also began to actively reflect on and summarize the impact of this plunge on the DeFi ecosystem. MakerDAO successfully held the first stage of the debt auction, which attracted the participation of well-known investment companies including Paradigm and Dragonfly. This also shows that the operation of the DeFi system has not been greatly affected . An area of ​​participation.

Pan Chao : The oracle machine was not attacked on March 12th, but when some mortgage positions were liquidated, due to the congestion of Ethereum, many auctions were closed at a very low price close to 0 . Why "3.12" affects DeFi, there is such a contradiction, DeFi's original intention is to reduce leverage, and now this serial burst is due to high leverage.

This is very strange, because the high leverage is not in the DeFi application, but the centralized exchange affects DeFi, because there is a bridge in the middle called USDT. Many USDTs are now issued on Ethereum, whose role is leveraged trading, which can be leveraged 100 times or more. When the market plummets, these highly leveraged products require additional margin. For these highly leveraged positions, users are willing to pay excess network fees to make up for it, which leads to the impact of the entire DeFi infrastructure.

Hu Zhiwei : Personally think that DeFi performance in the extreme market of 3.12 is still quite in line with expectations . Indeed, a lot of liquidity and liquidation problems have occurred. On the one hand, they are inseparable from the overall environment. When the liquidity of assets including crypto assets and DeFi has become a problem, some friends will feel very strange. Bitcoin, the so-called safe-haven asset that many people thought in the past, has been synchronized with the entire environment this time; On the other hand, DeFi is still relatively early compared to traditional finance, so there are still many improvements in the design of the underlying technology and mechanism of the entire technology. Helen: If someone must carry the pot, who will carry it? Is Ethereum the biggest bottleneck in DeFi development?

Liu Qiushan: The underlying infrastructure that DeFi depends on must bear the brunt. If an underlying infrastructure is not ready to provide complete services for upper-layer applications, it is likely to be outdated and will be quickly replaced. Ethereum not only exposed the performance and handling issues this time, but also did not integrate a complete risk control layer in the overall DeFi ecological construction, that is, the illusion of pursuing quantity and application prosperity blindly, which led to its so-called DeFi ecology. Excessive decentralization.

DeFi is essentially financial. Even if it is decentralized, it should be serious in key risk control and security. As the underlying infrastructure, it has not assumed responsibility in this regard, even if a certain DeFi application does itself well, It is not enough to cope with the risk of borderlessness.

Brother Tiao : My point is very clear, it must be the pot of Ethereum. Objectively speaking, this is also impossible . Ethereum has been congested many times in its development history, such as the ICO in mid-2017 and the Crypto Cat at the end of 2017, which caused all applications on the Ethereum network to be paralyzed. Therefore, the Ethereum team is fully promoting the deployment of Ethereum 2.0. I believe that these problems can be solved after sharding technology and conversion to PoS. At the same time, we have seen the development of cross-chain projects such as Cosmos. Although the current view is that Ethereum is the dominant company, but gradually, as everyone's technology matures, the market will gradually become more professional.

Talking about stablecoins

Helen: In order to deal with unexpected situations, Maker has made a lot of adjustments. The most concerned is the zero interest rate of deposits and the introduction of the centralized stable currency USDC. Can Pan Chao explain the reason?

Pan Chao : The deposit interest rate is adjusted to 0, which is a means to change everyone's expectations of prices in order to increase liquidity. Although it is undesirable for DAI depositors, it is common in any financial market. This is a short-term phenomenon.

The introduction of the centralized stablecoin USDC is not a sudden decision, but in the multi-mortgage DAI market, the system has become more flexible due to its diversified assets. Although some centralized risks are inevitable, the greater risk is a single high-risk asset, which leads to the collapse of the entire system. Helen: How do you understand the significance of stablecoins to the DeFi ecosystem?

David Lei : Stablecoin is the first-level entrance of DeFi ecological flow, and it is a battleground for military strategists. At this stage, all mainstream stablecoins use the US dollar as an anchor and a unit of valuation. This is actually unhealthy. More mainstream international currencies should be introduced as a unit of valuation for stablecoins to enrich the ecosystem of DeFi. At the current stage, fiat-currency-guaranteed stablecoins dominate the market, and the share of encrypted asset-backed stablecoins has not been high. A large part of the reason comes from the holding costs of stablecoins such as DAI, resulting in a limit on the circulation.

The Force Protocol released the QIAN stablecoin, which is a crypto asset-backed stablecoin. Compared with the first-generation crypto asset-backed stablecoins such as DAI and KAVA, QIAN version 2.0 adopts an innovative design. The white paper will be released soon. Publish . With reference to the actual currency issuance mechanism, we chose the linked exchange rate system of Hong Kong dollars, canceled the interest borne by CDP holders, and became zero-cost positions.

Such adjustments will help QIAN's founders hold positions for a long time, and expand the user scale and market share of mortgage-based stablecoins. We have also introduced a market arbitrage mechanism in the linked exchange rate system of QIAN stablecoins to further strengthen the stability of QIAN stablecoins. CDPs holding QIAN do not have to worry about bursting their positions in extreme market conditions, at the same time there is no cost, and they may even get incentive income from smart contracts under certain conditions.

The team expects that after the upgrade of QIAN 2.0 is completed, these unique designs will be favored by the market and users, and it will also help promote the use of QIAN stablecoins in a wide range of scenarios such as international remittances and payments. Get in touch with a larger user group and really get out of DeFi. We are planning to switch the QIAN stablecoin from an anchored US dollar to an anchored RMB. At that time, we hope to promote the acceptance of RMB in overseas markets through QIAN marketing.

Hu Zhiwei : DeFi has many different forms such as payment, loan, tokenization, DEX, etc. Stablecoin is also one of the forms of DeFi. Stablecoin currently has many features for crypto assets, such as deposits and withdrawals, transaction unit media, and liquidity. Of course, it is also easier to be accepted by the traditional world. As a tool for actual scenarios such as offline payment, it is a blockchain project. A very good path for external expansion.

In terms of our cooperation with e-Money, on the one hand, the stable currency in the euro area can participate in the on-chain application of IRISnet through cross-chain services; on the other hand, it will also expand the ecological and application scenarios of IRISnet in Europe.

On DeFi Risk Control and Governance

Helen: The free invocation of the DeFi protocol also lays a time bomb for systemic risks. How do you think the DeFi ecosystem will conduct risk control?

Liu Qiushan: We divide DeFi risk control into four categories: arbitrage risk control, audit loopholes, risk prediction and risk management. DeFi is a SOLD financial system (Stablecoin, Oracle, Lending, Dex). The composability makes us respect the existence of arbitrage. At the same time, it also supports a ten-fold risk management mechanism. Joining a DeFi ecosystem with n different applications, then The corresponding risk complexity is 2 to the nth power.

MOV has done a lot of academic research work on arbitrage risk control and risk prediction, and of course it can be integrated into production. For details, see the all-weather risk measurement mentioned in the "MOV Stable Financial System" . We have also implemented procedures and Submitted papers for international conferences. In general, we believe that the realization of risk prediction is completely feasible , mainly focusing on the volatility, correlation, risk reserve and black swan exhaustive work to form a system, that is, in a DeFi engineering and production process, Risk control functions and outputs should be regarded as equally important positions and professional management as product function development.

Note : Smart contract is a data-driven tool, and its running result is determined by the input data. As a financial smart contract, DeFi is more dependent on high-quality financial data. The device that sends data to the smart contract is the oracle machine. A DeFi project has perfect code logic, and the input parameters determine the output results. Therefore, a high-quality oracle is crucial to the DeFi project.

Some time ago, the Ethereum network was very congested due to the dramatic price fluctuations. However, due to Chainlink's decentralized network design and economic incentive mechanism, no loss of assets was caused during this period. This is enough to prove that Chainlink is an excellent moat for the DeFi project. Helen: The Maker Foundation has transferred the smart contract of the management agreement to the MKR token holder as a key step under the governance right. Is the community ready?

Pan Chao : We handed over the control of MKR to the MKR holders. In fact, we handed over the right to issue additional MKR to the community. This does not mean that the foundation no longer exists, and the foundation will eventually disappear. . At present, it is difficult for the entire community to manage agreements in a decentralized manner. Risk control and governance are the pros and cons of coins. Governance is more difficult than risk control, especially in terms of decentralization.

Helen: The Force Agreement supports the community-developed ForTube bond platform. There is a voting rating link. How are voting rules set up? Can it be effectively rated and protect investors' income?

David Lei : On the ForTube platform, crypto bond issuance adopts a self-service model. The bond issuer fills in basic information, including project conditions, market conditions, third-party rating data, debt issuance structure, capital utilization, and debt repayment guarantee.

The bond issuance information is verified by the Force Agreement community and the bond credit rating is determined. The credit rating is an evaluation of the risk of bond default and provides a certain reference for investors. There are two modes of credit rating methods: community rating and professional rating. Community rating: Holding FOR agreement ecological token FOR can participate in bond credit rating. After knowing the bond issuance information, the voter locks the FOR to the voting level. After the bond financing is successful, the FOR can be released and the rating service fee can be obtained in proportion.

Professional ratings: Professional ratings are mainly aimed at corporate entities or project parties, and are conducted by professional credit rating agencies or professionals. In January 2019, the Force Agreement was the first in the industry to publish the “Note on the Credit Rating Method of the Force Agreement Tokens V1.0” to fill the industry gap. ForTube Crypto Bond Ecology welcomes more professional institutions to participate. To become a professional rating individual / institution, you need to submit an application to the ForTube developer (later the approval authority will be transferred to community governance), provide materials that can prove professional capabilities and qualifications, and submit to the system Lock up 1 million FOR tokens. Locked tokens cannot be retrieved during the rating period and the duration of the rated item.

The final rating will be determined jointly by the community rating and the professional rating, with a community rating weight of 60% and a professional rating of 40%. The service fee is divided in equal proportions. The rating service fee can only be withdrawn after the bond is due for repayment. If bad debts occur and the debt cannot be repaid after the pledged asset is disposed of, the handling fee will be used to compensate the investor for the loss. Helen: MOV officially launched on March 30. But friends in the community have some doubts, how does MOV become a DeFi infrastructure?

Liu Qiushan : What is MOV, Chang Chong gave a very good answer last week, "Although MOV has the function of completing the exchange, it is not correct to understand it as DEX." "Transaction is transfer", MOV should be understood as a transfer agreement. Therefore, the MOV and the exchange are not on the same track, they are mutually dependent and complement each other. At present, the exchange is trading mainstream public chain assets, but it may not be such assets than the original chain. We are more interested in stablecoins and synthetic assets.

MOV actually helped the exchange to open up a broader market, it will traditional assets on the chain through the form of mapping, expanding the scale of assets. At the same time, the exchange is also very helpful to MOV, because the DeFi tool requires a robust external oracle and a strong liquidity market, so the feed price and liquidity of the exchange are very important for DeFi.

Talk about DeFi and cross-chain

Helen: Cross-chain has high hopes, will DeFi be the core application of cross-chain? Except for the DeFi scenario, is IRISnet and Ethereum 2.0 a competitive relationship?

Hu Zhiwei : It should be said that cross-chain is the basis for the further development of DeFi . We should call it DeFi as open finance, and cross-chain can make the value of different blockchains interoperable. Taking DEX as an example, users can use cross-chain to not only securely trade on exchanges that are not controlled by a central institution, but also have Larger transaction space-not only can tokens with different attributes be atomically exchanged across chains, but also service-oriented blockchains such as IRISnet can be used to make financial services cross-chain calls. Cross-chain gives DeFi greater imagination.

In fact, the Cosmos ecology has always maintained a very close relationship with the Ethereum ecology, and is also exploring many ways of linking, such as Ethermint. In application scenarios, Ethereum mainly uses virtual machine systems to support smart contracts, and IRISnet provides various basic modules that support the development of application-specific chains to implement cross-chain service calls. In the future, IRISnet can also connect to Ethereum through IBC, so that the application scenarios on Ethereum can be inter-chained into the ecology of IRISnet. Perhaps many chains have the relationship between cooperation and competition, but the current development of blockchain is still in its early stages. Now cooperation is greater than competition. Helen: The essence of cross-chain is "asset mapping". What is the relationship between ChainLink and the public chain that makes cross-chain protocols?

Article brother : There is no direct relationship between Chainlink and cross-chain protocols. Chainlink is a decentralized oracle network that can provide data from outside the chain for the blockchain. Provide a function of some data bridges between chains, which can provide asset asset support on data information of different chains for "asset mapping". It is attached to each public chain and serves applications on the public chain. Initially, Chainlink was serving the Ethereum network. Recently, Chainlink has access to the Polkadot and Cosmos networks. As long as it is an ecologically active public chain project, Chainlink is willing to provide support.