Decentralised Finance (DeFi) is an opportunity to bring about a more resilient and transparent financial system where people are in control of their assets. Through the use of blockchain, programmable smart contracts can handle digital assets, financial contracts and digitise finance processes via DeFi protocols. It allows people to verify how much money they have, where there money has gone and how much interest it has made, rather than trust a centralised institution to do it for you.
What are the Main Areas that DeFi is Disrupting?
The main areas that DeFi is tackling can be grouped into Decentralised Exchanges (Dexes), Borrowing & Lending, Derivatives, Wallets & Payments, and Crypto Assets, Interfaces & Infrastructure:
- Decentralised Exchanges (DEX) are cryptocurrency exchanges that operate purely from the code within Smart Contracts that securely execute funds transfers, currency trades and enforce trading rules. There is no account sign up, KYC identity verification or centralised entity that operates the exchange.
- Borrowing & Lending platforms written in Smart Contracts allow users to deposit their money to earn interest from borrowers who need a loan. The financial smart contracts enforce the terms of the loan between the lender and the borrower along automatically execute interest distribution, all without the needs to trust a centralised bank and also allowing higher interest rates for the lender due to the lack of middle-man.
- Assets like Stablecoins allow DeFi platforms to hold value by utilising assets that are pegged to the value of fiat currencies such as the USD or the EURO. Other assets include the 1000’s of cryptocurrencies that exist which are inherently volatile, along with tokens that are pegged to the value of gold and other commodities.
You can view the full list over at DeFi Pulse!
Another important point to be aware of, is that many of these companies are not registered companies, but Decentralised Autonomous Organisations (DAO’s)! The tokens they offer, allow token holders to vote for proposal and the future direction of the project.
The “Money Lego” concept is another opportunity for DeFi, where standalone concept projects can interoperate with other platforms to become a financial system that is bigger and better than incumbent financial institutions.
So Why Are So Many DeFi Products Building on Ethereum?
Out of the 34 DeFi projects that DeFi Pulse are tracking, 33 of them are based on the Ethereum platform (~97%). CoinMarketCap is tracking 42 DeFi projects, with approximately 23 operating on Ethereum as an ERC-20 token (~55%). The other tokens run on EOS, TRON or have their own chain. It is important to note that the above stats do not include DeFi protocols that do not have a native token.
We can safely say that the majority of DeFi projects are based on Ethereum. But why is this?
The main reason the majority of DeFi projects are built on Ethereum is two fold, it is where the overwhelming majority of DeFi users exist and it’s the most battle tested and familiar smart contract platform on the market. There are a number of competing layer 1 projects that provide faster block times, lower fees, etc. But they lack the user base to really draw in development at the moment. It’s a bit of a chicken or the egg scenario and until that’s resolved Ethereum will remain on top in this regard.Chris Brennan, Lead Community Manager, bZx
We’ve already proven that the overwhelming majority of DeFi projects are building on ethereum. However, Ethereum is also a proven smart contract platform, with Messari tracking smart contract addresses back to August 2015. These smart contracts have been hacked, exploited, security-tested into infinity over the past 5 years and are certainly battle-tested.
Over the past 2 years it has definitely been Ethereum leading the way in active smart contracts. At the time of writing, the latest smart contract count from the top used blockchain platforms are as follows:
- Ethereum – 475,000
- Tron – 147,000
- EOS – 55,000
- Cardano – 9,800
- Tezos (XTZ) – 4,440
The Solidity programming language for the Ethereum blockchain Smart Contracts is also the most familiar. There a 1000’s of websites that have Solidity training, including ones that have certification and even over at Udemy there are 383 courses on Solidity.
All is Not Perfect on the Ethereum Side of the Force
DeFi works to increase speed and liquidityNasdaq
Speed and scalability are DeFi’s biggest challenges. The public blockchains underlying DeFi are currently unequipped to process such large volumes of data at a scalable speed. While Visa can process 24,000 transactions per second (TPS), the Bitcoin network can only process up to seven TPS and Ethereum can process just 15 TPS. However, DeFi is actively solving these issues with developments such as the Lightning Network, which is based on the idea that not every single transaction needs to be recorded on the blockchain and instead the final one of multiple may be sufficient.
As previously written, there are a few reasons why Ethereum Projects are Moving from Ethereum to Solana so they can Scale.
The main takeaways are escalating transaction fees, transaction delays and the opportunity cost of waiting for ETH 2.0. At the time of writing, the average TX fee was $0.196 USD to have your transaction processed in under 2 minutes. The average Ethereum block speed was 1 every 12 seconds.
There are plenty of scaling solutions being developed for Ethereum and a lot of them rely on sharding. Layer 2 scaling solutions are built on top of Ethereum such as ZK rollup, sidechains, payment channels (One of these is Matic, which recently claimed 7,200 TPS in TestNet). Layer 1 scaling is what ETH 2.0 will deliver in a “couple of years”.
The speed of current blockchains is also quite slow, with Ethereum only currently reaching 15 TPS. Through the use of zkRollups (bundling of transactions) it is possible for Ethereum to scale ~2000 TPS. Although the next releases of Ethereum Phase 0 (end of 2020) and Phase 1 ~100K TPS (couple of years) will result in increased performance, these may be delayed so the future is unknown.
Solana MainNet is running and has already solved a lot of these problems.
Why is Solana Better for DeFi Product Development?
1. Solana is Quicker
Solana has been evolving for evolving for over 2 years and has been designed to scale from the genesis block!
It currently has been tested to scale to 56,000 TPS back in March 2020. (In test lab conditions can purely scale to 111k in May 2020)
- Max. Transactions Per Second: 59,490
- Block times: 400ms
Its been designed to scale with hardware, bandwidth and compute industry gains. So expect these number to scale as the industry scales!
2. Solana is Cheaper
Defi applications can not only rest assured, that it will be quick enough, but also know that there is no situation where a transaction is going to cost $1 in gas fees to quickly be processed!
The current Solana transaction fee is:
- Cost per Transaction: $0.00001
Don’t let your blockchain app get bogged down. Shift to Solana!
3. Solana is Decentralised
At the time of writing the Solana MainNet had 128 independent validators securing the Solana Blockchain Network.
Read our whole article on this here!
The Independent Validators that make the Solana Blockchain Decentralised
4. Solana is Open Source
You can download Solana software code straight from Solana Lab’s Github and have your own node up and running in a very short time. There is plenty of documentation on how to do this over at Solana Docs!
5. Solana Blockchain Apps are Built on Rust
Rust is one of the fastest growing languages according to Github’s The State of the Octoverse. For Solana, Rust solved the issues of memory safety and thread concurrency. The Facebook Libra Project also chose Rust as their programming language.
Using LLVM, the same compiler that targets WASM, we provide a great set of tools for developers to write high-performance smart contracts in C/C++ and Rust that execute contracts on GPUs. Although Solana isn’t using WASM, developers can re-compile C and Rust code written for WASM compilers in the Solana compiler with minimal changes. Thus, developers can easily migrate their applications from other major WASM chains like Dfinity, EOS, Polkadot and Ethereum 2.0.Solana Labs Blog
This is further backed up by the reasoning of Polkadot choosing WASM,
For this, we need a better virtual machine than the EVM (Ethereum VM), and especially we need something that is more efficient. We chose WebAssembly (Wasm). This is a virtual machine specification that is intended to match the semantics of physical machines in the real world today, making it efficiently executable on modern hardware. It’s also built to be easily verifiable, not necessarily for logical correctness but for memory safety.Polkadot Medium Blog
It seems like the Rust Blockchain ecosystem is growing alongside the growth in the programming language itself, check out this extensive list here: Rust in Blockchain.
Want to learn more about Why Solana chose Rust?
If you want to get started with Rust you can read the official eBook or check out the 72 Rust Courses over on Udemy.
6. Solana has Partnered with Chainlink for DeFi Oracle Data
Back on the 23rd of March 2020, Solana announced integration with Chainlink so they could provide high-speed Oracle data feeds to DeFi applications.
We plan to make Chainlink the oracle solution for both this initiative and the standard across all Solana Dapps. By doing so, Dapps will get secure access to all the inputs and outputs they need, while avoiding the major pitfalls with trying to deploy self-made oracles, such as long time delays, additional expenses, and even fatal security flaws.Solana Labs
Solana couples the Chainlink oracle with a non-sharded, low-latency, high-capacity replicated state machine. We can help with the oracle and marketplace problem by offering more block producers per second, more traders per second, and more price feeds per second. If you design your marketplace such that it behaves fairly and if at least one honest block producer participates in a certain time window, then our performance can help maximize the odds of an honest block producer participating in the market. To offer some concrete numbers, Ethereum blocks are produced every 15 seconds. Solana has 400 ms blocks, with block producers rotating every four slots (1600ms).Solana Labs
7. Solana has Partnered with Stablecoin Token Bridge Terra
Together we’re building a new high-speed token bridge that facilitates the transfer of Terra stablecoins into Solana’s dapp ecosystem. Terra’s tokens will be the first stablecoins on the Solana network. By bringing stablecoins onto our network, we aim to dramatically expand the design space for developers, opening the door to novel applications that require price-stable payments. Similarly, and by the same token, we hope to support Terra’s expansion by creating a seamless gateway to our developer community.Solana Labs
At the time of writing, Terra has 1,800,000 users, processed $250 million and has an annual run rate of $1.2 billion.
As history has shown, stable payments are the foundation of some of the most successful DeFi applications. It’s our hope by prioritizing support for stablecoins with Terra that we can accelerate the DeFi ecosystem within Solana.Solana Labs
When will be the DeFi Flippening?
We are currently at 55% of DeFi apps on Ethereum. At some point there will be a DeFi flippening, where the majority of projects realise the benefits of using a no sharding, low cost, high speed blockchain like Solana. The established players may never come across, but there is opportunity for nimble DeFi projects to cross the chasm and delivery a superior product that is super quick and has minimal fees for their customers.
Want to Learn More About Solana?
Feel free to start building with the Solana code, get assistance via the Solana Accelerator or reach out to the team at Solana.
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Nice to me
Not sure I can take anything written here as researched when you claim Cardano had > 9000 smart contracts in July 2020.
I’m going to have to agree with you on this. According to Messari data there was minimal smart contracts running on Cardano already (perhaps testnet) as in this article “Publicly” available smart contracts are coming in one of the many upcoming cardano releases:
Will review what data Messari is actually looking at here, but the link to the source is provided.