From 2020 to 2021, decentralized finance (DeFi) experienced explosive growth. Decentralized exchanges (DEX), lending, stablecoins, payments and other related projects have emerged one after another. At present, the total value locked in DeFi protocols has reached $41.949 billion US dollars, accounting for 3.03% of the global market value. Blockchain is characterized by anti-censorship, being open source, transparent, and removal of central financial intermediaries, which makes it a perfect domain for DeFi development.
What is Decentralized Finance and what problems does DeFi target?
Decentralized finance (commonly referred to as DeFi) is a blockchain-based form of finance that does not rely on central financial intermediaries and instead utilizes smart contracts on blockchains. Based on blockchain technology and cryptocurrency, DeFi is born to re-create and improve the traditional financial system in all aspects.
Rather than transactions being made with and through a centralized intermediary such as banks, insurance companies, and stock exchanges, transactions are directly made between participants. DeFi resolves the problem of identity authentication and has gradually developed a financial system which is different from traditional finance.
DeFi can resolve two problems in current traditional finance: unequal financial services and financial censorship. For individuals who do not have a “bank account”, DeFi can provide these people with opportunities for financial services such as loans and mortgage insurance. Secondly, in terms of financial censorship, current centralized financial institutions can shut down accounts of individuals or companies and restrict their transactions, so that certain individuals are not able to obtain financial services.
State of DeFi and existing flaws
More than 2 million users have invested in DeFi within one year, and DeFi-related smart contracts have locked in value of over 120 billion U.S. dollars. The daily transaction volume of DEXs has exceeded 2 billion U.S. dollars. For a lending platform with over 10 billion liquidity, the utilization rate of stablecoins exceeds 80%. Decentralized stablecoins (DAI) have a total supply of 3 billion+USD in circulation.
The explosive growth of DeFi has also brought about some problems. Current DeFi projects are mainly built on the Ethereum network, where certain flaws exist.
- High Gas Fees and Network Congestion
The prosperity of DeFi also brought congestion of the Ethereum network and soaring gas fees. Users are paying gas fees reaching dozens or even hundreds of dollars (USD). The ever-increasing gas fees leads to network congestion and prevent projects from reaching their full potential.
2. Asset Security
Most DeFi products on the market require signature verification from personal wallets. Some projects maliciously abuse contract vulnerabilities to steal user assets, causing great losses.
3. Limited Access
The logic of DeFi is complex, and the on-chain operations are cumbersome. Large investors with financial and technical support have become the main beneficiaries of high-yield farming, and most retail investors are blocked. DeFi has gradually become a game for the rich.
Ethereum currently has prominent flaws, and there is still a long way to go from ETH2.0. The current ETH network cannot fulfill the requirements of DeFi projects with high performance, such as traditional banking (lending), payments, financial controls, clearing and settlement, and the issuance of managed assets.
Proof of Time and Space (PoST) — A better choice of consensus for DeFi
PoST combined with Verifiable Delay Functions enables Chia to be resistant against external attacks. Developing DeFi products on the PoST consensus mechanism has the following advantages:
1.Low GAS fees: Take Chia as an example, transaction fees are around $0.15, while they are roughly $28, $10 for BTC and ETH. Transaction costs are drastically lower for users.
2.Faster: TPS for BTC is 4–5 at this moment, while it’s 17 for ETH, but Chia’s TPS can reach up to 20.
3.Highly secure: The delay function adopted by the PoST can effectively defend against malicious attacks such as rewriting attacks, DDoS, spam, 51 attacks. Using physical hardware devices is as secure as POW. The PoST consensus mechanism is naturally safe and reliable, and can defend against a large number of external attacks.
4.Environment friendly: The physical hardware devices used for PoST (Proofs of Time and Space) are energy-saving, electricity independent and environmentally friendly.
5.The advantages of developing DeFi using Chia’s own language — Chialisp
In addition to adopting PoST consensus mechanism, Chia has invented its own independent programming language — Chialisp, which will greatly increase Chia network’s development potential. Chialisp introduces a new and much better approach to building smart transactions. Chialisp is a language that offers a better approach to building smart transactions, that is simpler, easier to implement and with less overhead.
Further more, unlike Ethereum and its many competitors, Chia is not aiming to achieve complete comprehensive functions, or becoming a blockchain with complete and general uses like Ethereum. Instead, Chia focuses on enterprise-level financial services, aiming to become suitable for banking (lending), payments, financial applications and other scenarios, such as financial controls, payment clearing and settlement, and the issuance of managed assets.
It is advantageous for DeFi projects to build on the Chia network. Chia has obvious technical advantages and at the same time, Chia is still in its very early stages. Its ecosystem is not very developed yet, and there are still ample opportunities for new projects to shine.
To serve this purpose, Sirius Labs has initiated a platform for Hackathons and will hold a Global Chia Hackathon. Sirius Labs will grant $500,000 to the prize pool, and the winning teams may receive rewards up to $100,000! In addition to financial rewards, Sirius Labs has also designed a series of technical training camps to help developers create and build. The winning teams will receive not only start-up capital, but also incubation opportunities provided by top investment institutions, as well as help with global roadshows.
Sirius Labs is a blockchain incubator headquartered in Norway and founded in 2021. Sirius Labs seeks to help start-ups attain success by providing them with the necessary resources to help them transform their original ideas into exciting projects that are ready to be introduced to the entire world.
The Sirius Labs team comes from Norway, Singapore, China, France, Australia, Canada, etc.