It's been a while since I came to Steemit and writes. I think there are a lot of people I've been seeing in a long time. I think there will be many new people. I will briefly introduce myself first. Nice to meet you. My hobby is Esri studying blockchain technology.
I remember studying hard until 2018, but haha people are so cunning, and in a boring decline market, they became neglected to study. It was also very busy. Only recently did I finish my doctorate defense and graduate. Thanks to this, I studied blockchain for a few weeks. It was a bull market, so I was motivated and had a lot of fun studying.
The theme I'm missing recently is DeFi. Most of the people on Steemit have a quick source, so I think everyone has heard of it a lot and knows it well. I like to study deeply that interests me. But the data was really hard to find and it was hard to study ㅠㅠ I learned a lot because I studied really hard. It's a really fun theme, and it's a technology that has created a really exciting market. Would it be similar to the feeling when you first encountered Ethereum smart contracts?
I used to be like that, but when I learn some interesting and interesting techniques or facts, I want to tell you here and there. I thought there wasn't a place like Steemit as a space for that, so I came back. I think I should post at least 3~5 posts. Hope you look forward to it! Then let's start~
Beginning of Decentralized Finance (DeFi)
Source: Binance Academy
It's the hottest theme in blockchain technology these days. It is Decentralized Finance (DeFi). Actually, it's not that new word, but if you think about it, it's a pretty new concept. In the past, the concept of decentralization was focused on the development of digital assets with a monetary character called Cryptocurrency. On the other hand, the current DeFi focuses on decentralized p2p mortgage loans, p2p transactions, and DEX. There is another difference. While it was Bitcoin's decentralized consensus protocol (POW, so-called mining) that gave monetary value to digital assets, it was Ethereum's smart contract that made DeFi possible.
DeFi's gunship seems to be the opening of the MakerDAO project. Recently, Dan Larimer tweeted that he was the first to launch DeFi and inspired the creation of EOS. Of course this is also true. Dan Larimer was one of the developers who developed a DPoS-based DEX called BTS (Bitsahres). DPoS was a project to solve the huge transaction and fee problem of DEX, one of DeFi's core apps. And his move has been passed on to BTS -> STEEM -> EOS. So it wouldn't be an exaggeration to say that EOS is a project designed for DeFi. However, there are many corners to rethink about DPoS these days. I believe that through the Steemit Hard Fork issue, we have clearly identified the limitations and risks of the DPoS consensus protocol.
It leaked to the side for a moment. By all means, the MakerDAO project came into the world in January 17th based on coinmarketcap. This project started sooner than I thought. MakerDAO is basically a blockchain-to-people (hereinafter referred to as b2p) mortgage loan protocol. There is nothing difficult. MakerDAO's protocol allows anyone to run a smart contract that can generate DAI (a token designed to have a value of 1$) if Ethereum (ETH) is locked in. In simple terms, you can assume that you borrow a token called DAI with Ethereum as collateral. The collateral ratio can be set at a maximum of 50%, and automatic liquidation is also included. For example, if there is a greater risk that the market value of frozen Ethereum will be lower than the issued DAI, the system automatically auctions the locked ETH and exchanges it for DAI and burns it. It has similar characteristics to a general margin/leverage trading system.
It was a very interesting project in that it is a decentralized loan system. In a general centralized financial system, mortgage loans require trust in each other, but the key is that DeFi does not need to trust each other thanks to smart contracts. In a way, it is one of the few'immediately realizable' applications of smart contracts. The reason this is feasible right now is that it has a relatively weak dependence on Oracle.
Oracle: A system that provides real-world information that goes into the input of a smart contract. For example, if you input the spot stock price as an input, who will put it in how? The key will be how the system is decentralized and accurate information can be provided without trust. Chainlink is a coin that is receiving hot attention these days with this Oracle technology.
Limitations of DeFi
Unfortunately, DeFi and MakerDAO haven't received much attention for quite some time. I remember it was probably about 18 years old. I read this coin white paper too, and who the hell is using this? I thought about it. If you think about the use of this system, it comes to the conclusion that it is for leverage. For example, you can repeat the act of buying ETH again by using the 50% value of DAI obtained by locking in and raising the leverage up to 2x.
However, there were many disadvantages compared to the leverage service provided by the centralized exchange. In centralized exchanges, 3x leverage is basic, and certain exchanges have up to 100x leverage, so there is no reason to use only 2x leverage. And the DAI-ETH exchange is not as easy as it sounds. Are there many market participants who accept the DAI token as 1$ and change ETH? The average person would not believe the $1 value of DAI. There is no one responsible for guaranteeing the value of $1. Ironically, DAI does not have a centralized institution to guarantee its value, so there is a risk of depreciation. If you use the DeFi leverage system, you can avoid the risk of hacking the exchange, but there is a risk of DAI value decline.
There is a bigger problem beyond that risk. DAI-ETH exchange has to be exchanged directly within the ETH blockchain as few exchanges have listed DAI, and the fees (Geth, provided to miners) for this are too expensive. There is also a fee for raising or lowering the quotation. Considering that the fee for one transaction is usually about 2~20$.. Who wants to spend it? In addition, there were many platforms that supported decentralized p2p transactions, but the entry barrier was high and there was no incentive for the general public to participate. As a result, the liquidity is too small and the market spread is large, so it is usually necessary to exchange at a loss ratio. So, the vicious cycle of getting less volume repeats. If the transaction of DAI-ETH tokens is made a lot + cheaper, there will be more incentives to receive loans and it will help stabilize DAI prices, but that is not possible. After all, the biggest limitation of DeFi was in this decentralized p2p transaction.
The emergence of Uniswap
However, here comes the project that created the trick to solve this liquidity problem. It is a decentralized p2p token swap dApp called Uniswap. In this project, a liquidity provider created a pool, and the provider created a protocol that takes the fee of p2p transactions. It's an innovative protocol designed to be really smart. What's even more surprising is that the development team that completed this project did not create a separate token. Was it really to achieve decentralization? You didn't create project ownership itself in the first place. This innovation has eventually achieved tremendous growth in recent years, and token trading volumes have become comparable to binance exchanges.
Eventually, as the transaction volume of ETH-DAI exploded, an atmosphere of value assurance was formed, and the growth of DeFi services was gained momentum. So what was that Uniswap made of? That idea is really, really, really important to understand DeFi's explosive growth, so we'll go into more detail in the next article. See you next time!
Conclusion
We wish to become a healthy and fun blockchain community. Thank you!