Blockchain-based decentralized financial instruments (DeFi) technology is still in begining, but already offers users the ability to have broader and more transparent access to financial instruments. The new ecosystem of applications in this area is just the beginning for a global market reform around the world. And the Free TON project is always synonymous to the word “develop” and has the most direct relation to DeFi.
What is DeFi?
DeFi is a new financial paradigm. And become to be interested for the minds of people in the world of finance. According to defipulse, the total value of DeFi-locked assets exceeded $ 9.5 billion (up from less than $ 0.5 billion a year ago).
In contrast to the decentralization of money through blockchains such as Bitcoin, DeFi strives to a broader approach of decentralizing the traditional financial industry and the main aim of this initiative is to provide access to traditional services for everyone. People who previously did not have access to such financial services will especially benefit from the development of this techonology. In other words, DeFi is an attempt to decentralize traditional financial instruments such as:
- Trade and payments
- Wealth management
DeFi is based on the work of decentralized applications (dApps). Like LEGO bricks, any DeFI app can interact with another app. Smart contracts are responsible for application functions, just like an API for a standard application.
DeFI usually exists on more advanced blockchains, where there is an opportunity to develop smart contracts. Also, there should be enough professional developers in the community. Until today, almost all DeFi projects have been developed on Ethereum, and it has become the main blockchain for many dApps. Taking a look at the average data for December, Ethereum dominates in the number of applications, user activity, and also trading volume.
At the same time, there are other blockchain projects that are attractive to dApps, such as EOS. Other projects that are trying to implement DeFi in their own are currently far from the result. They either do not have competent developers or do not have real decentralization and, as a consequence, the main advantages of blockchain technology. Some projects don’t have either.
According to one of the latest data, the amount of blocked funds in Ethereum is more than 680 million US dollars (approximately 2.5 million ETH).Regarding to the blocked volume, MakerDAO dominates among the main application, followed Synthetix, Compound, InstaDapp, Uniswap and dYdX.
What are the main benefits of DeFi?
DeFi is built on blockchain. Blockchain usually called primary level of infrastructure, therefore, DeFi cluster can be regarded as the second level application. Thus, DeFi has basic properties of blockchain. This is called decentralization.It is important to note that it only works if the chain of blocks in blockchain is decentralized. Using blockchain as a technological infrastructure allows to have fast and low-cost transactions / settlements, immutability of financial contracts and their automation. DeFi applications allow the user to be the sole owner of their private information and, especially, private keys.
A huge advantage of DeFi is the minimal risks for application users. All data is stored on the blockchain, and personal interests are governed by a transparent protocol or, more simply, a contract. For example, one of the largest active contracts DeFi currently allows you to block up to 10 million US dollars. And you don’t need a bank account, the participation of a third party, and the client always own his finance.
Compare this with the traditional financial industry, where huge resources are allocated to create a system and all parties involved in a transaction could trust each other and check each other. This is due to strong centralization, there is no transparency of financial relationships (for example, the 2007 crisis), there is censorship and restrictions on financial transactions in many countries.
This is due to strong centralization, there is no transparency of financial relationships (for example, the 2007 crisis), there is censorship and restrictions on financial transactions in many countries. Moreover, the system is not keeping pace with the digital era: the cross-border transaction takes an average of 3 working days and costs ~ 6.8% commission!!!
Then why hasn’t this technology taken over the entire financial industry yet?
However, the implementation of DeFi does not currently justify the promising theory. For the widespread introduction of decentralized applications, DeFi must solve serious tasks.
- DeFi is an area of technical experimentation and innovation. Accessibility is global, but not intuitive from a UX perspective. In addition, since the system is based on cryptocurrencies, the conversion of traditional currencies to cryptocurrencies should be gradual.
- In terms of liquidity, the system is inferior to centralized alternatives. This is important because liquidity is critical to effective pricing in the financial industry. In fact, most protocols currently cannot compete effectively with low-fee systems. Services such as MakerDAO, for example, are currently not used as a tool for providing loans without prior decision, but rather serve only as a decentralized way to create leverage in Ethereum. By converting ETH to DAI and reinvesting it into ETH, a centralized leveraged long strategy is implemented.
- Technical risks such as errors in smart contracts or at the blockchain level are difficult to detect because it’s relatively new techonology. In nature, false or fraudulent transactions on the blockchain are irreversible.
- In addition, there are operational risks
- DeFi represents a potential systemic risk which occurs from the interdependencies of the DeFi protocols.
- Network reboots: During intensive use, for example, Ethereum had several problems with debris of blockchain. If the network becomes debris, the transaction can remain pending, which ultimately leads to market inefficiencies and delays in information transmission.
- Transaction costs, such as fees for operation in the chain (gas) as competing transaction based on the value of gas, the transaction with a lower priority may remain pending longer.
- Synchronization issues as the state of the blockchain is updated every 15 seconds, which is very low for traditional finance. In DeFi, interest and prices are calculated per block and require stable block mining to operate reliably. Even if these problems are specific to Ethereum, similar problems can exist on any blockchain. In particular, Ethereum sometimes faces network performance issues due to its popularity and use. In contrast, most other existing blockchains currently don’t face scalability issues simply because they don’t have enough traffic or are much more centralized in design of technology. This provides faster speeds and better performance.
Use cases for DeFi
As stated earlier, DeFi is main thing for decentralized financial infrastructure, but many applications can be built on top of its technology. These applications will replace the routine processes in the everyday life of the average person. The most interesting areas are lending and exchange applications. The table lists the different use cases for DeFi.
Here’s a small but simple summary of the DeFi use cases. Interestingly, the provision of financial services for the cryptocurrency ecosystem is currently being approached from two sides: centralized or decentralized. For example, a two-currency exchange can be centralized (like Coinbase) as well as decentralized (like IDEX). In addition, dollar pegged stablecoins exist in a centralized format (e.g. USDT displaying the US dollar on the blockchain) and decentralized format (such as DAI, a synthetic display of the US dollar on the chain at this point in time).
Why it’s really necessary to do it in Free TON.
The main mission of the existing DeFi Sub-Governance is to create a basic infrastructure to make easy the integration of new partners into the Free Ton DeFi ecosystem, as well as to attract current market leaders from Ethereum. Many DeFi projects are implemented in this blockchain. This, in turn, will contribute to the distribution of Free Ton everywhere.
The second important feature of Free Ton is smart contracts. Their implementation differs from other blockchains in that almost any logic, from business tasks to the legal aspect, can be shifted to smart contracts. In addition, thanks to the protection against Abuse and DDoS attacks, due to the fact that any action is provided with the burning of coins for the execution of the contract, it is possible to develop truly secure and decentralized products.
The TON blockchain (Telegram Open Network) is a fifth generation of blockchain projects, his features can be described in a separate article. The main thing to note is that this is a blockchain project capable of accommodating applications of any scale, including numerous ideas implemented in the DeFi field. In addition, the project also includes several futuristic components (TON P2P Network, TON Storage, TON Services, TON OS), and all of them together can provide cool development ecosystem of effective and secure DeFi applications.
Another feature is the presence of Deboots, these are programs that interact with smart contracts. For the user, they are presented visually, which allows just to satisfy the possibilities of interaction of an ordinary person with the blockchain system.
So Free Ton needs DeFi, just like Free Ton needs DeFi. Indeed, thanks to the technologies developed within the Free TON project, it is possible to create applications that are sufficiently secure, functional and with a relatively low entry threshold for a new user.
Moreover, the blockchain infrastructure allows you to solve many of the problems that were mentioned above. Free TON is the fastest blockchain platform in the world (the platform with the highest bandwidth). According to the developers, Free TON is architecturally designed for a speed of over 1 million transactions per second (TPS). Also, in case of problems with scalability, TON has a built-in sharding function. It is worth talking about it in separate articles, or you can read it in the FreeTON Wiki, but if we talk briefly this technology increase the speed of generating new blocks increases, the operation queues do not accumulate, which ensures low transaction costs, even if some of the services using platform will become massively popular. The Ethereum cryptocurrency, which I wrote about above, faced a similar problem at one time, and here is the solution!
Thus, DeFi technologies based on Free TON can become analogue to the service like Visa / Mastercard payment systems, etc
In conclusion, it is worth mentioning two main reasons why DeFi is needed in FreeTON and vice versa. The essence of this blockchain project is designed in such a way that it will become an ideal environment for creating DeFi applications and will bring additional popularity not only to the project, but also enable anyone to move to a qualitatively new level of financial relationships and operations. The title of the article is called why DeFi is needed in Free Ton, but I think it is clear to everyone that TON is the key solution for DeFi.