Editor's Note: This article comes fromWebX Labs Daily (ID: gh_3bc595acebaf), reprinted by Odaily with authorization.

Editor's Note: This article comes from

WebX Labs Daily (ID: gh_3bc595acebaf)

Judging from the development of Ethereum and DeFi this year, DeFi has played a vital role in the formation of a public chain ecology.

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So when will we see Ethereum grow into an ecosystem? An obvious signal is that DeFi has grown from budding to a closed-loop DeFi ecosystem. Now we see that DeFi has locked a large amount of funds and users for the entire Ethereum ecosystem, forming a series of business divisions and collaborations including DEX, lending, stable coins, aggregators, etc., and most importantly, due to the popularity and continuous development of DeFi With development, a large amount of assets are flowing to the Ethereum ecosystem, such as more than 150,000 Bitcoins circulating on Ethereum.

In addition to the horizontal development, we have seen the more in-depth evolution of DeFi, such as decentralized options, derivatives, synthetic assets and so on. Although such an ecology seems to be an overly single financial ecology, just as the Ethereum bubble in 2017 brought the foundation for the development of the DeFi ecology, the rise of the Ethereum DeFi ecology this year will also provide a basis for the diversity of the Ethereum ecology. A solid enough foundation.

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NO.2 Looking at DeFi on Polkadot from the DeFi Ecological Stack

According to this logic, we can look at another popular public chain IP - Polkadot. Polkadot has not experienced the situation of Ethereum in 17 years, but what Polkadot faces is Bitcoin and Ethereum, which have a huge market value, and a relatively mature user market. Nepoca’s heterogeneous multi-chain interconnection structure design and PDK suites such as Substrate are far more mature than those three years ago, and these are all attractive to developers.

The well-known venture capital Multicoin Capital recently disassembled DeFi into a 6-layer stack, including atomic value units, transaction layers, price oracles, DeFi underlying products, protocol aggregators, wallets, and front-ends. Next, we will use this model to analyze the current development of Polkadot DeFi.

We all know that a large part of this year’s DeFi wave is due to the high returns of liquidity mining, and the reason why we can create tools like liquidity mining is because of the composability of the DeFi protocol. The founder of the venture capital fund Variant In the words of Jesse Walden: "A platform is composable if existing resources on the platform can be used as building blocks and programmed into higher order applications. Composability is important because it enables Developers can do more with less, which in turn can lead to faster and more complex innovation."

So how do we look at the development of Polkadot DeFi from this perspective?

Whether it is social or business ecology, the foundation is assets, and because it requires transactions and flows, assets need to be decomposed into an almost infinitely small amount. This is the first layer of the DeFi ecology, the atomic value unit.

Ethereum has ETH, various stable coins based on the ERC-20 protocol, and anchor assets such as WBTC, renBTC, etc. These assets are used as raw materials to flow into various lending and derivative agreements, and finally return to the original state. At present, Polkadot's own DOT and the test network Kusama's KSM have not yet reached the level that can be used as a basic value unit. But thanks to Polkadot's own cross-chain design, the Polkadot DeFi ecosystem can easily introduce other mainstream assets. ChainX, the most famous asset cross-chain protocol in the Polkadot ecosystem, can transfer assets such as BTC, ETH, and EOS to other public chains for circulation in a completely decentralized manner. In addition, there are transfer bridge projects such as Darwinia, which can realize businesses such as stable currency cross-chain or asset transaction exchange, and external assets can seamlessly connect to Polkadot’s DeFi ecosystem.

#2 Deal

The transaction here is not a simple transfer. With the continuous enrichment of DeFi protocols, on-chain transactions have also become more complicated, such as liquidation execution, distribution of rewards, issuance of deposits and leverage, etc. On Ethereum, these are often completed across multiple protocols, and this process will generate A large number of Gas fees, and due to the complicated transaction process, have largely caused congestion and high costs for on-chain transactions. Finally, it is even more difficult to conduct direct transactions across networks. For example, crossing Bitcoin and Ethereum is almost impossible, and usually requires the help of various centralized solutions.

The "transaction capability" of Polkadot DeFi is obviously stronger. As early as September, the Polkadot network has successfully completed inter-chain asset transactions through the XCMP protocol, which can save a lot of redundant links. The expansion scheme of the relay chain is also simpler. The most important thing is that with the function of the transfer bridge, various protocols in the Polkadot DeFi ecosystem can communicate and interoperate more directly with other network protocols or assets.

#3 Price Oracle

At present, Polkadot DeFi has some different ideas for the development of oracle machines. More directly choose Chainlink as the source of price feeds. Polkadot officials even declared: "Chainlink will become all Substrate-based chains, and even the entire Polkadot The first and most important oracle provider of the network." In addition, it also includes open source financial information platforms such as DIA.

The most special thing is that in Substrate 2.0, it is implemented through the off-chain worker module, which can obtain real-world information without relying on external oracle providers. Substrate has gradually become a network middle platform from the initial development module, like a tray, inheriting the tools or protocol modules needed by various developers. Since the off-chain workers module leverages Substrate nodes to perform operations normally outside the capabilities of a blockchain, these nodes are capable of performing web requests, encryption and decryption, data signing, random number generation, and other CPU-intensive tasks. In contrast, an oracle system like Chainlink’s data collection logic is entirely off-chain. Smart contract developers can only access the final data submitted by the oracle machine, which requires a certain degree of trust in these providers, and the information obtained based on off-chain workers should be more secure and credible.

After reaching this level, developers can basically build more complex DeFi underlying products.

#4 Underlying DeFi Products

The complete DeFi underlying products include:

2. DEX: Reef Finance, the DEX that comes with the Acala ecosystem, the Homa protocol, the derivatives trading protocol Bifrost, Polkastarter and Zenlink for cross-chain DEXs, derivatives DEX – Nirvana, Polkaswap, Polkadex, Mangata.finance

Why do you say these are low-level products? Because each underlying product can be used independently or combined with other underlying or even lower-level products. The atomic value units of the first layer can be mortgaged in Acala on this layer, or they can borrow assets from the lending platform and deposit them in DEX for liquidity mining, and then transfer the obtained tokens back to the lending platform to become new collateral.

#5 Protocol Aggregator

Products at this layer are usually built based on smart contracts, enabling users to directly interact with other DeFi protocols without calling smart contracts themselves. These aggregators can be mainly divided into supply-side aggregators and aggregators of aggregators. However, we have not seen particularly targeted aggregator products on Polkadot, and are more integrated into some wallet applications or comprehensive Polkadot DeFi projects.

#6 Wallets and front-end applications