Polkadot is Kickstarting the Next Phase of DeFi Revolution, and Composable Finance Sits Right at the Center.
Polkadot is setting the pace for a new experience in decentralized finance. Here is how it is doing that.
The application of blockchain has impacted the finance industry through the birth of decentralized finance, which is geared towards disrupting the traditional finance world. Although DeFi is still in its infant stages, it is currently recorded to have a Total Value Locked of about $101.35B. Despite the vision of creating a system that renders financial services to participants in a decentralized manner, DeFi has some challenges which pop up one compelling question “Can DeFi disrupt the traditional finance?”
Among other challenges the DeFi ecosystem faces, the scalability issues stand out as the inherent design of leading blockchains is limited in the number of transactions they can handle per second. This poses a significant challenge to the growth of DeFi because these networks are getting bigger. As such, more transactions will lead to congestion, high transaction fees, and a long response time, ultimately discouraging the adoption of blockchain.
The ability for blockchains to communicate freely with each other and share information is another challenge faced in the ecosystem because of its segmented nature. Interoperability is critical in the DeFi ecosystem as it will facilitate the movement of digital assets across blockchains and enhance sharing and accessing data between two or more blockchains.
To stay relevant and meet the market’s needs, blockchains require upgrades, which is another common challenge in the DeFi ecosystem as conventional blockchains require forking the entire network. It can take months of work to be achieved, and hard forks can break apart the community, which took time and effort to build.
Several blockchains have been developed to address some of these challenges present in the DeFi ecosystem. However, Polkadot stands out as it is charged with revolutionizing decentralized finance.
The Polkadot Solution
Polkadot is an open-source blockchain protocol built by the Web3 Foundation with the aim of uniting an entire network of purpose-built blockchains, allowing them to operate seamlessly together. As a solution to DeFi issues, Polkadot brings together the best features from multiple specialized blockchains, thus paving the way for new decentralized marketplaces to spring up, offering innovative and convenient ways to access DeFi services.
The same core challenges of the DeFi ecosystem-Interoperability, scalability, upgrade, and security-are all resolved by the Polkadot ecosystem.
Polkadot has a unique heterogeneous sharding model that connects several chains in a single network, thus allowing them to process several transactions in parallel and exchange data. Its heterogeneous sharding model facilitates more possibilities for innovation as each chain in the network can be optimized for a specific use case rather than being forced to adapt to a one-size-fits-all model. True interoperability is achieved as it enables cross-blockchain transfers of data tokens and assets.
Polkadot solves DeFi scalability issues by bridging multiple specialized chains together into one sharded network and allows for various transactions to be processed in parallel. It aims to further develop faster scalability solutions in the future with a planned feature known as ‘nested relay chains,’ which will increase the number of shards added to the network.
To ensure proper blockchain upgrade, Polkadot enables blockchains to upgrade them without the need to fork the chain. This allows the Polkadot blockchain to quickly adapt to changes and upgrade itself as better technologies become available.
Polkadot has the parachains feature, which are advanced, next-generation layer-1 blockchains that transcend the limitations of legacy networks and run parallel to the Polkadot relay chain. It also has the Kusama network, a network built as a risk-taking, fast-moving “canary in the coal mine” for its cousin Polkadot. Kusama serves as an experimental development environment.
Innovation and accessibility for DeFi is a core feature needed by users, and Composable finance aims to achieve that.
Composable Finance: The Face of DeFi Future
The lack of compatibility between blockchains and layers is a challenge that results in disparity and efficiency, and developers are often challenged with the restriction of what they can build with the siloed infrastructures. For users, they are forced to navigate these complex, and overwhelming processes present if they do want to access the features of multiple chains and layers.
Composable Finance aims to build a fully interoperable blockchain feature that is capable of offering developers and end-users seamless user experience and utility. It bridges the gaps between today’s isolated blockchain layer-2 scaling solutions to create a single and unified access point called “Innovation Availability Layer (IAL), which communicates with composable cross-chain XM.
A core feature of Composable Finance which is the Composable Labs, serves as an incubation arm and is responsible for developing and deploying novel sets of financial applications as an attempt to prototype new tools and technologies.
Composable Finance serves as a gateway and cutting-edge solution that allows builders to seamlessly build and deploy dApps capable of interoperating across layers and chains. It has tech stack features which comprise Mosaic, which is a Layer-2 bridge between projects like Avalanche, Arbitrium, or Fantom, Mural which is an NFT bridge, XCVM which is a smart router for DeFi users, Angular Finance which is the future of lending on Polkadot, Whirlpool Cash which is a privacy and yield farming blend and lastly the Innovative crowd loan approach.
Composable Finance won the 13th Kusama Parachain auction slot for Picasso and is currently crowd loaning for the Polkadot Parachain slot, which will enable it to provide the necessary blockchain-agnostic functionality that is required to achieve a truly seamless user experience. At its core, Composable Finance supports the growth of its ecosystem through knowledge sharing, grant availability, and incubation.
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