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This article is from an article on the Parity blog on December 10, 2020. The author is Peter Haymond, Parity Ecological Development Manager.
secondary titleOver the past few years, decentralized finance (DeFi) has become one of the most popular use cases in the crypto ecosystem. Simply put, DeFi can be described as financial software built using blockchain technology, which has the potential to make financial applications more open and accessible. At Parity, we are seeing more and more DeFi teams building solutions using our blockchain development framework, Substrate, many of them for the Polkadot ecosystem.
DeFi stack
The DeFi tech stack enables teams to mix and match projects to build high-value applications. In simple terms, it can be thought of as three layers:
Application layer - what the user sees
Base Layer - How to record value and data on-chain
Substrate lets developers build on each layer, which forms the backbone of Polkadot. Most DeFi teams are in the protocol layer, creating applications for users to interact with. Additionally, we’re starting to see some of these DeFi projects becoming vibrant ecosystems in their own right, reflecting one of Polkadot’s distinguishing characteristics, that Polkadot is an ecosystem of ecosystems.
DeFi on Polkadot
base layer
base layer
protocol layer
Polkadot - A network protocol that allows the transfer of arbitrary data across blockchains.
protocol layer
Acala - DeFi hub and decentralized stablecoin aUSD, aUSD allows users to send and receive USD cross-chain between any blockchain connected to Polkadot.
Stafi - Allows anyone holding staked tokens to stake and earn replacement tokens (rTokens) to trade and swap instantly without waiting for the unbonding period to complete.
Bifrost - Parachain that allows users to deposit their staked tokens and mint vTokens for staking liquidity.
Equilibrium - A cross-chain money market that combines mutual lending with synthetic asset generation and trading.
Centrifuge - Allows businesses to leverage their accounts receivable and other future cash flows to obtain financing without trusting a middleman. They also offer the Centrifuge chain as a gateway for real-world assets into DeFi.
HydraDX - Frictionless Liquidity for Crypto Assets.
application layer
Laminar - Decentralized finance platform built by Acala that powers synthetic assets, margin trading, and money markets.
application layer
Polkaswap - Automated market maker (AMM) / non-custodial exchange built by the Soramitsu team.
Note: We primarily list projects that are themselves built for Polkadot or aim to be parachains. Some of them (such as SushiSwap) are built on parachains rather than Polkadot itself.
Composability
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Composability
Polkadot uses cross-chain message passing (XCMP) for asynchronous communication between parachains. With XCMP, a chain can send a message that does not expect a response (but is guaranteed that the receiving chain will act on it), or it can send a message that expects some information in return (such as the return value of a function called on the receiving chain).
DeFi based on Ethereum and Bitcoin will be able to communicate within the Polkadot ecosystem using a bridge. For example, Chainsafe and Snowfork are developing trusted Ethereum bridges, and Interlay is building a low-trust Bitcoin bridge. Teams building on Polkadot can leverage XCMP and bridges to create novel, interoperable DeFi products.
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What Makes Polkadot Unique
Polkadot has a powerful feature set that DeFi projects can leverage. By allowing independent blockchains to be developed, we could see some really interesting use cases.
DeFi projects in Polkadot are not just replicating existing concepts, but creating entirely new ones. An example is Acala's decentralized sovereign wealth fund (dSWF). The purpose of dSWF is to make Acala economically sustainable to provide the funding needed for ongoing research and development and to pay for security on the Polkadot network. Acala’s stablecoin platform works similarly to MakerDAO, requiring a stability fee to be paid when a collateralized debt position (CDP) is closed. After the CDP is closed, the accumulated stability fee will remain in the system treasury. These tokens will then be used to buy DOTs from the market and deposit them to replenish the DOT reserves held by dSWF, rather than burning native ACA tokens, whenever system profits exceed a certain threshold. This makes dSWF an attractive and versatile system. You can learn more about dSWF here:https://medium.com/。
future
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future
Teams in the DeFi ecosystem are building or thinking about various products. Currently, we see the most development activity in products such as stablecoins, non-custodial exchanges, money markets, and oracles. This makes sense, as these types of products are often considered DeFi primitives and foundational elements. Going forward, we expect to see many types of DeFi products in the Polkadot ecosystem powered by Substrate, such as:
Revenue aggregation platform
Derivatives
Derivatives
Decentralized Futures
lossless lottery
Decentralized Futures
License-Free Options Trading
Loan Credit Risk Agreement
