The term DeFi, short for "decentralized finance," has been entering the lexicon of the tech world for the last few years, yet only gaining real popularity recently.
But just as with all overnight successes, this one has been a long time in the making.
And there's likely no coincidence that DeFi is pronounced exactly the same as "defy," since that is exactly what the industry is doing to the world of traditional finance.
So what is DeFi?
In short, traditional finance relies on centralized institutions, such as banks, which act as intermediaries. Other centralized regulatory bodies and law courts provide arbitration.
However, DeFi solutions do not need intermediaries or arbitrators. The code specifies the resolution of all possible disputes, and its users maintain control over their assets.
How serious is the DeFi industry right now? Well, assets committed to DeFi broke $1 billion in February 2020, $2 billion by July 1, and $3 billion only 20 days later. That kind of growth can't be ignored.
However, it has been hard for those that have dipped their toe in the DeFi world to move assets between decentralized apps (dApps), until now.
LiquidApps - a research and development company focused on optimizing decentralized development - recently announced that the DAPP Network community has successfully deployed a cross-chain communication channel that allows tokens and data to flow freely across different blockchains, with an initial implementation between Ethereum and EOSIO-based chains.
In other words, this development brings the kind of scalability, and cost-efficiency required to reach the masses. Many of the leading DeFi players, such Uniswap and Synthetix, have already signalled their intention to utilize second-layer solutions as a means of reaching scale that is inconceivable with only base-layer blockchains. Cross-chain technology opens up a world of crucial functionalities that combine relevant strengths of different blockchains and drive immense opportunities for projects and users alike.
So why are base-layer blockchains a challenge for DeFi solutions, and how does LiquidApps get around these?
"Blockchain resource models on base-layers are the main limitations holding DeFi back from exploding further," Beni Hakak, CEO at LiquidApps, told me. "Lifting those boundaries allows anyone to participate in the DeFi boom, regardless of whether they are a whale or a tiny fish. Furthermore, blockchain is still a pond when compared to the large ocean that is traditional finance, and yet the DeFi space is largely limited further to just Ethereum. For DeFi to truly flourish not only do the scalability limitations need to be addressed but also the ecosystems on various chains, including Ethereum, Bitcoin, Polkadot, and others, should be connected. LiquidApps is building the technology that scales each chain in its unique way, and bridges between them to allow data and tokens to flow freely."
The Ethereum bridge now allows projects on other chains to plug into Ethereum’s liquidity and financial services ecosystem. At the same time, Ethereum developers can utilize the bridge in order to harness the DAPP Network’s universal layer-two to scale their dApps beyond belief, while keeping their tokens on Ethereum. They can also leverage additional functionalities available on the universal layer-two including reduced gas costs, customizable sharding, and innovative oracle, which are all offered on a free-market basis. Ethereum tokens can also be migrated over to alternative ecosystems for high-throughput trading.
And what are the benefits, for potentially competing DeFi solutions, in using a second-layer infrastructure?
"The shift towards layer-two is accelerating in DeFi as projects realize that the prohibitive costs of gas place a glass ceiling on their growth prospects," Hakak said. "Running on a layer-two could allow for exceptionally more transaction throughput while keeping costs at a minimum. As a universal layer-two that has already demonstrated the power of cross-chain bridges, the DAPP Network has the extra advantage of working across multiple ecosystems and bridging between them to allow for integrated apps with seamless interoperability. Cross-chain interoperability can free developers to realize their imaginations on whatever chain they wish."
The cross-chain bridge utilizes a combination of DAPP Network services, including high-throughput oracles for accessing trustworthy external data, and a cross-chain data transfer service, to enable the flow of tokens and other forms of data between different chains (currently operational between EOSIO & Ethereum). The technology’s features allow dApp developers to connect assets, actions, and applications across the DeFi ecosystem, creating more cost-effective infrastructural options and tailored trustlessness for dApps.
What is next for LiquidApps?
"In keeping with our vision of connecting and scaling everything, LiquidApps will continue working together with the DSPs and the rest of the DAPP Network community to break down the walls between chains by bringing interoperability to fruition," Hakak said. "Regardless of which chain dominates in the long run, we need bridges to allow for tokens, data, and developer talent to shuttle seamlessly across chains."
It is certainly an interesting approach and a crucial time for DeFi solutions. The current scale of growth in the industry is going to be hard to keep up with unless it leverages scaleable technologies and solutions, so platforms like the one offered by LiquidApps could be crucial to the development of the entire sector. Time will tell.