DeFi and traditional finance

What is the difference between DeFi and traditional finance, and what is the future prospect?

Traditional finance generally has the following main problems:

expensive: for example, cross-border transfers usually need to pay tens of dollars in processing fees; for example, investors buying wealth management products usually need to pay at least 1–2% of the annual management fee to the fund manager;

The process is cumbersome: the transaction process of traditional financial institutions is extremely complicated. For example, bank account opening requires users to provide various identification certificates, they need to go to the bank to sign contracts, and various KYC and AML related audits are performed on users, which is inefficient; the above mentioned Cross-border transfers also take 3–7 days;

black-box operation: information asymmetry is currently one of the most criticized problems in traditional finance. The 2008 financial turmoil was a thunderstorm under the financial industry’s massive leveraged investment in complex derivatives, and many ordinary investors had to bear the losses;

DeFi Open Finance was born in the spirit of “free and open”, which is to provide effective solutions to the above-mentioned series of problems. Compared with traditional finance, the advantages of DeFi are:

openness and transparency: based ontechnology and, all transactions are publicly auditable, traceable, and queryable on the chain, and no one can tamper with it at will, allowing centralized institutions to do evil The cost of investment increases, and investors are more secure.

No trust/authorization required: DeFi Finance reviews the management authority to each user, and the private key in charge is the proof of their own wealth. In the lending scenario, the mortgaged assets of the borrower are locked in the smart contract to protect the depositor, open and transparent, and available at any time The viewing mechanism gives individuals the first financial management services without relying on centralized institutions.

Disintermediation: The process of centralized institutions is too complicated and cumbersome. The operation process of DeFi is simple and transparent, and the lending procedures can be completed within a few minutes; the advantage of disintermediation is to save expensive intermediate fees and effectively reduce financial transaction costs , Therefore, make financial service fees cheaper and.

no participation threshold: exempt from the threshold of net assets and investment amount;

high liquidity: because the network is open to the world, financial services in DeFi are matched on a global scale and are no longer restricted by geography The limitations.

After understanding the difference, let’s first look at the development trajectory of DeFi and the industry panorama.

DeFi is the abbreviation of Decentralized Finance. Compared with Centralized Finance (Centralized Finance), it uses cryptocurrency as its basic asset and gradually replicates CeFi into various forms of CeFi. Generally speaking, the development process of CeFi is like this: original currency, bank/P2P, asset trading, and derivatives. Corresponding to this, the development path of DeFi: Bitcoin/Litecoin, etc., lending/stable currency, DEX, Synthetix.

Regarding the development status of DeFi, we can also examine the five perspectives of assets, projects, public chains, users, and risks:

(1) Assets:mainly BTC cross-chain to Ethereum, among which RenBTC, WBTC, etc. are all mined from liquidity The mine has benefited a lot.

(2) Project: TheDeFi community has set off a wave of forks. Loan projects and trading projects promote each other, and the cooling of liquidity mining has caused the scale of loan projects to decline.

(3) Public chain: Themain domestic public chains are also exploring the layout of DeFi, but most of them start from liquid mining, and the foundation is unstable; and they are opening up the cross-chain with Ethereum, seeking diversification of assets and gameplay.

(4) Users:In view of the lack of sustainable hematopoiesis in most mining projects, there is a lack of continuous user stickiness, and short-term incentives determine the flow of user funds. Typical examples are Sushiswap and Uniswap.

(5) Risk: The risk ofhotspot projects is very high in terms of technical security, and the multiple nesting of protocols and assets in each project makes the entire DeFi market must be alert to the occurrence of systemic risks.

The DeFi ecosystem mainly includes stablecoins, DEX, lending, derivatives, etc., and there are different relationships between them and mining. Among them, mining has rapidly promoted the growth of stablecoin issuance and transaction scale, stablecoin mining has led to an increase in the scale of borrowing, DEX (AMM) is the main place for the operation of mining models, and derivatives can promote asset diversification and transaction types Enrich, gather reasonable wealth, etc. In addition, major centralized exchanges such as Huobi, Binance, and OKEx have also launched mining products or businesses. These are the ecological panorama of DeFi.

Secondly, what does DeFi solve?

(1) For the exchange, the problem ofliquidity and slippage issolved.

(2) For start-up project parties, it solves theof leverage of market-making fundsproblem.

(3) For mature project parties, thebusiness volumeisproblemsolved.

Third, why does DeFi need Wayki-X, a synthetic asset protocol?

(1) Solve technical limitations and enrich assets.At present, the basic assets in the DeF field are limited to the cryptocurrency field, and the cross-chain technology is not mature enough. Synthetic assets can allow different chain assets and off-chain assets to be traded on the same platform.

(2) Its synthetic assets can expand liquidity.At present, the lack of liquidity of DeFi is also one of the difficulties. Although market makers play an important role in the middle, financial tools for proper risk management are limited. Synthetic assets and derivatives can help the market expand its business scale by hedging positions and protecting profits.

(3) Lower the threshold and expand participation.Traditional financial asset transactions have a high threshold. Synthetic assets can provide more diversified financial tools for native cryptocurrencies, and can also attract non-native users to participate in transactions.

4. Future trends and opportunities of DeFi

After a period of development, DeFi has gradually changed from a single variety to multiple varieties, from fuzzy to clear. DeFi proposes four important development trends:

(1) The utilization rate of funds will continue to increase, and there will be a wide variety of derivatives: the current mortgage is mainly over-mortgage, and the future will be more inclined to the form of margin trading and securities lending.

(2) More abundant off-chain assets: The pace of exploring mortgages or transactions on the chain of physical assets will accelerate.

(3) The influx of foreign capital is spreading: The average interest rate of DeFi is significantly higher than that of traditional funds, and the entry of traditional funds has become inevitable.

(4) Mutual integration of multi-chain assets: dual-currency public chains will appear, and multiple public chains will become “side chains.”

Although the development of DeFi this year has triggered a certain wealth effect, all participants should remain cautious, recognize their roles and adopt corresponding strategies, and do not blindly influx. Different participants should have different concerns:

(1) For entrepreneurs, make arrangements in advance, do not blindly chase hot spots, and pay attention to the direction of DeFi traffic entrance. In addition, it is much easier to develop a single application project than to develop a public chain ecosystem.

(2) For investors, the main concern is: Token value capture ability, market-sales ratio compared with the same type of agreement, and team resource capabilities.

Finally, WaykiChain’s integrated DeFi ecosystem will become a new trend in the future.

DeFi effectively solves some of the problems in CeFi, but it also has some problems, such as low public chain performance, different user entry barriers, single business, and users need to switch between multiple platforms. In fact, the entire industry lacks a financial platform with high security, good experience, and one-stop service. In response to these problems,WaykiChain has created an efficient and high-performance blockchain infrastructure and provides one-stop decentralized financial services to users and institutions.

(1) WaykiChain has made some achievements in the construction of the underlying infrastructure. For example, it adopts the DPoS+pBFT consensus mechanism, which can process 4,500 transactions per second; supports WASM+Lua virtual machine to ensure safety, efficiency and higher It is scalable and friendly to developers; through decentralized gateways to cross-chain, the assets are more secure; decentralized oracles, super nodes feed prices, and adopt a moving median algorithm, which is more secure and transparent.

(2) In terms of product applications, WaykiChain has developed products such as the centralized stable currency WUSD, the decentralized mortgage lending system Wayki-CDP, the decentralized exchange Wayki-DEX, and the decentralized synthetic asset issuance protocol Wayki-X. , Forming a comprehensive and complete DeFi ecological closed loop.

DeFi open finance is still a new thing. There is still a lot to go in the future. It also requires everyone to work hard to build a new financial system. I believe that in the next ten years, many people will use DeFi open financial services. At the same time, More DeFi head companies will emerge.