According to DeBank data, the current real lock-up volume of the DeFi market has reached 45 billion. After the summer that many people regarded as a bubble, the DeFi market as a whole has been continuously expanding and developing. This kind of continuous growth and popularity has brought some effects. In this market, Ethereum was originally supported “on its own”, but after the continuous expansion of DeFi, the original Ethereum performance ceiling has increasingly affected users’ Using experience and cost, many applications began to look for other alternatives. For example, Sushiswap has deployed contracts on xDai, Moonbeam, Binance Smart Chain, Polygon (formerly Matic) and Fantom. At the same time, projects like 1inch also increase support for public chains such as BSC. Imagine a faster and cheaper trading venue. Who wouldn’t like it?
Where will the spillover projects and resources flow under this effect? We will not mention the Layer 2 direction for the time being. The other two important directions are based on the Ethereum virtual machine or other public chain projects compatible with the Ethereum virtual machine, such as Near, Solana, etc., and the other direction is a cross-border such as Polkadot. Chain project.
In comparison, a cross-chain network such as Polkadot has a higher voice for the next position of DeFi in the future than Layer 2 with thunder and rain. On the one hand, Polkadot’s cross-chain design allows DeFi’s building block advantages to be brought to a higher level. On the other hand, based on the experience of Ethereum, DeFi has brought enough solid value support to the entire ecology. Therefore, the first thing to be popular on Polkadot must be DeFi projects, which has almost become a consensus.
In fact, we see that the current Polkadot parachain test network Rococo has already connected to 11 parachains, and there are 21 parachains waiting to apply for access. The next step is to start the auction of Parachain slots after completing the parachain online and testing. This time will not be too long. Polkadot will take on the opportunity of the spillover effect of DeFi resources and gain more room for development. Therefore, we need to have a new understanding of the current Polkadot DeFi.
The first thing that will explode should be the basic components
According to official statistics, there are currently nearly 400 projects based on Substrate. The most powerful ones should be asset cross-chain, staking liquidity, stable currency, lending and exchanges.
The first is the two directions of asset cross-chain and staking liquidity release. These two directions should be in one category, and both introduce more assets for Polkadot DeFi. These two directions are important because DeFi looks more at the amount of locked positions at the macro level. Assets are the basis for the operation of DeFi applications. The larger the volume of assets, the more prosperous the operation and development of the entire ecosystem.
At the moment, Polkadot’s own assets are still relatively small, which is likely to restrict the development of the entire Polkadot DeFi ecosystem. Then the introduction of external assets will become particularly important. Currently, the two main introduction channels are the introduction of mainstream assets, and the activation and introduction of staking assets.
For Polkadot DeFi, the two biggest “cakes” are BTC and ETH. Such assets can be connected to Polkadot’s Defi ecosystem through projects such as Darwinia and ChainX that focus on cross-chain functions. In addition, Interlay has launched PolkaBTC, a Bitcoin anchor coin, and also wants to introduce BTC in a decentralized way. To the Polkadot Ecosystem, the testnet has now been launched. Of course, this type of project is the most indispensable among Polkadot.
Another important source is the huge staking assets on the market. It is well known that in order to maintain its own security, PoS public chains require a lot of staking behavior, which leads to a large number of assets being solidified in the staking pool. According to Stakingrewards data, the current total market value of PoS assets is 312.5 billion U.S. dollars, and the market value of Staking assets has reached 62.5 billion U.S. dollars. Being able to leverage this part of the assets will bring a large wave of nutrients to Polkadot DeFi. This direction is currently mainly Bifrost, Stafi and the leading project Acala’s Homa Staking derivative agreement.
In fact, NFT, which has recently started to become popular again, may also become an important source of assets for Polkadot DeFi, if NFT can be used as collateral to circulate in DeFi products. But at the moment, this direction is still a bit far away for Polkadot DeFi.
The other direction is the lending market and stablecoins. Currently there are projects like Equilibrium, similar to MakerDAO on Ethereum, where users can mortgage mainstream tokens in Equilibrium to mint decentralized stablecoins. A similar project is Acala, which has high expectations in the parachain auction, which is the first native stablecoin on Polkadot. But we cannot simply regard Acala as a stable currency. Acala’s financial system includes liquidation, oracle services, support for cross-chain multi-asset mortgages, release of Staking liquidity, DeX, synthetic assets, etc. Among them, the Honzon stablecoin protocol, the Homa Staking derivatives protocol and the built-in decentralized exchange (DeX) are the core modules of Acala’s financial infrastructure system. The Honzon and Homa protocols are Acala’s two lower-level DeFi protocols. In this way, a financial system based on the continuous cycle of stablecoins and derivatives has been formed.
In terms of exchanges, the current mainstream projects are Polkaswap and HydraDX. Polkaswap’s interoperability allows Polkaswap to trade any tokens, while Ethereum-based decentralized exchanges are limited to the network’s ERC-20 tokens. HydraDX implements an unconventional AMM model that uses a single decentralized pool whose liquidity comes from each liquidity prover and the platform itself.
Smart contract components, which are also vital to the DeFi ecosystem, are currently mainly built by Edgeware, Plasm and Moonbeam on Polkadot. Among them, Edgeware is the third-generation self-upgrading smart contract platform in the Polkadot ecosystem. Based on the Substrate chain, users can create smart contracts written in Rust and compiled into WASM. The feature of Moonbeam is that it is a smart contract parallel chain compatible with Ethereum, which can make the migration of DeFi applications on Ethereum more convenient.
It is worth mentioning that Plasm, originally Plasm is a Layer 2 smart contract platform on Ethereum. Its strength lies in its compatibility with different types of virtual machines including EVM, OVM, ECDSA and Solidity. Among them, OVM is a virtual machine that supports all Layer 2 protocols. Therefore, after DeFi on Layer 2 is developed, it can be seamlessly connected to Polkadot’s DeFi ecosystem through Plasm.
Polkadot DeFi racing against time
Based on such market trends, those who follow Polkadot can no longer wait. They have set their sights on the entire primary market of Polkadot DeFi and continue to accelerate the pace of investment. Recently, a large number of projects have also successfully completed financing. According to recent data from external statistics, the Polkadot DeFi field completed three financings in December. Cere Network, HydraDX and Tidal Finance; completed 5 financings in January, namely Apron Network, OptionRoom, ParaLink Network, ParaState, Bifrost; completed 7 financings in February, namely Dora Factory, Stone, Plasm, Clover Finance, Kylin Network, TrustBase, Idavoll Network; In the first three days of March, 5 financings were completed, namely Tidal Finance, Apron Network, Dora Factory, Plasm, Shadows Network.
In fact, since last year, Polkadot DeFi has been invested and bet not a few. In August last year, Acala received investment from 15 well-known investors with a financing amount of 7 million U.S. dollars, including PanteraCapital, ArringtonXRPCapital, ParaFiCapital, CoinFund, DCG, SpartanGroup and others are all involved. Regarding investment choices, ParaFi Capital partner Santiago Roel Santos once said: We envision a DeFi ecosystem that can span multiple blockchains and believe that this will be a win-win for the crypto industry. I am very happy to be the main DeFi hub of the Polkadot ecosystem with the team. “In addition, Stafi, ReefFinance, Coinversation, Crust Network, etc. were all favored by capital last year. In summary, Polkadot DeFi market has always been the track of choice for investors, like this year’s synthetic asset ShadowsNetwork and open programmable insurance market Tidal Finance, Polkadex ecological DEX protocol Polkadex, DAO infrastructure Idavoll Network, Polkadot Parachain TrustBase, etc. are all projects that focus on DeFi.
Although Ethereum’s dominance in the DeFi ecosystem cannot be shaken, at least the spillover effect brought by the congested network and high handling fees has brought new opportunities to other public chain camps. At the same time, Ethereum is vigorously promoting DeFi. The +Layer2 solution is far from reaching the level of large-scale migration, and various problems such as fund security have occurred. Therefore, a relatively large window period has been set aside for Polkadot DeFi. Next, can the parachain plug-in be used well? For this part of the capital precipitation brought by the slot, it will be crucial to complete the basic start-up of Polkadot DeFi before the window period closes.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.