As the new blue ocean lending rivalry rages on, who will emerge as the greatest beneficiary?
This article is posted by Raydius Research in ChainNews:https://www.chainnews.com/articles/812434288993.htm
In 2009, the birth of Bitcoin has allowed people from all over the world to truly recognise the potential of the blockchain industry. Indeed, blockchain technology can ensure the security of transactions between two parties without relying on third-party supervision. In other words, it can effectively solve trust issues between the sender and the receiver.
As blockchain technology continues to venture in various industries, the combination of blockchain and finance has provided a unique perspective to all investors. Blockchain has expanded its area of interest and financial business sectors, and the emergence of decentralised lending in particular has brought significant positive impacts to traditional finance industry. In the following article, more will be elaborated on the specific impacts brought about by decentralised lending, as well as ways to improve and further develop the finance industry.
Unregulated and Disoriented Centralised Lending Market
Among the traditional lending products and services, centralized lending is a type of business model that brings together private funds to lend to people with dire needs. In the early days, it was carefully regulated by the relevant government departments due to its lack of transparency and sudden introduction of new forms of financing which may affect the existing market. Below are some specific disadvantages of centralised lending:
- Collateral enforcement is difficult and risky. Peer-to-peer (P2P) lending is almost equivalent to unsecured lending with no collaterals needed. Worse, some Know Your Customer (KYC) verifications are not even equipped with risk control and gate-keeping functions.
- Credit risk and high bad debt ratio. P2P online lending platforms usually possess only a small inherent capital and hence lack the capability in taking on large guarantees. In the event of a large loaning problem, bad debt ratio will be inevitably high with increased number of fraud cases and people absconding with the money.
- Lack of effective regulatory tools. P2P lending is relatively new to the market; therefore, the Central Bank and China Banking Regulatory Commission (CBRC) have yet established clear laws and regulations to effectively regulate such new type of lending.
Decentralized Lending vs. Centralised Lending: Solving the Trust Problem
Decentralised lending is the most important component of DeFi. It allows cryptocurrency holders who are favourable of crypto assets in the long run, or have a short term needs for liquidity to use crypto assets for collateral debt. In short, decentralised lending has the following advantages:
- Decentralization. In decentralised lending, there is no need for any intermediary agencies for credit guarantee, and “laws” can be constructed directly on the code. Decentralised lending replaces centralised institutions with “laws” through smart contracts that enforce the rules being set out.
- Transparent and swift execution processes. Decentralised lending platforms use smart contracts to ensure that the entire process is open and transparent, making it easier and faster than traditional centralised lending of assets.
- Execution and asset security. Anyone has permission to access but not central control to the system, which ensures that all execution is done by smart contracts; decentralised lending will usually carry out over-collateralisation to ensure system security.
Konomi — Stability Ensures Prolonged and Conducive Lending Ecological System
The technical properties of blockchain corroborate with lending products inherently, and most decentralized lending in the market are established based on Ethereum. Konomi is a public chain based on Substrate and is committed to becoming an indispensable financial infrastructure for Web 3.0. Konomi is able to provide lending, swap, asset management, wallet and other financial derivative services, of which lending being its core business.
- DeFi Value Pits: Lending
Traditional mortgage loaning requires several compulsory processes, such as verification on relevent credit qualificiation and collateral auctions, which can be complex and time-consuming. However, Konomi is at the cutting-edge of the market by offering cost-saving opportunities, trust issue resolution and financial risk reduction through blockchain features. Furthermore, Konomi constantly upgrades its lending contracts base on the current mainstream decentralised lending product, which includes increasing transaction efficiency, accuracy in exchange rate and providing justified arbiter decision-making mechanism.
- Improved transaction efficiency. Konomi operates on Polkadot which can perform up to 1,500 transactions per second, much faster than that of Compound’s 20 transactions per second. This greatly enhances users’ lending experience.
- Accurate exchange rate policy. Konomi effectively makes use of Utiliztion Rate, Net Borrow Rate and Optimal Borrow Rate to balance the real-world borrowing rate, thus ensuring that the rate is justified and trustworthy.
- Diverse arbiter decision-making mechanisms. In addition to Konomi token holders’ involvement in major decisions, Konomi also invites external public arbiters to participate in decision-making, ensuring autonomous governance while taking into account external rationality, reducing governance failures as greatly as possible.
2. Multi-parameter Trading Protocols to Avoid Malicious Market Manipulation
While liquidified mining platforms such as Uniswap provide incentives for participants, the trading protocol can still have certain limitations which provides opportunities for some speculators to arbitrage the slippage between the trading pool and the centralised exchange, incurring impermanent losses for other users. The analysis is as follows:
In Uniswap AMM pool, knowing that X*Y (X and Y are the numbers of liquid pool tokens respectively) = k (k is a fixed constant), Uniswap sets Price A *X=Price ETH*Y. Bearing in mind that the number of A tokens bought is: X’-X, then Y-Y’ of ETH needs to be paid. When taking into consideration , PriceA/Price ETH=(Y-Y’)/(X’-X), which is set as the decentralised platform’s trading exchange rate.
Because in A-ETH trading pool, Price A *X=Price ETH*Y, which represents that as more A tokens are purchased, X will decrease in turn, and the number of Y representing ETH will increase, directly raising the exchange price of A to ETH and creating risk of excessive slippage.
Konomi introduces more market factors based on the Uniswap trading protocol, which greatly reduces risk of unnecessary losses. The factors introduced include: the total number of base tokens deposited by the liquidity provider, the total number of quoted tokens deposited by the liquidity provider, the current number of base tokens in the pool, and the current quoted price in the pool. Konomi expands to a multi-dimensional perspective to calculate and verify prices by adding four asset weighing parameters; increasing depth in the form of parameters can effectively stabilise exchange price and avoid the emergence of large token holders, which can potentially lead to excessive slippage.
3. Leveraging on the Polkadot Ecosystem: Connecting Multiple Public Chains for Value Exchange
The Polkadot Substrate structure is unique in that it allows parallel chain projects in the ecosystem to highlight their specialisation. It creates an environment for them to serve specialised vertical scenarios, at the same time enabling interaction with other parallel chains.
Besides focusing on the decentralised lending space, Konomi also provides value bindings for other parallel chains in the Polkadot ecosystem, providing more applicational operations for the ecosystem to become an indispensable part of financial lending business. With that, how should we define the true value of Konomi?
Konomi’s value anchoring
Konomi’s potential market capitalisation will be analysed in terms of macro market perspective and service categorisation.
Prospects for the DeFi Lending Market: A Trillion Dollar Business
In addition to lending services, Konomi also supports Swap, asset management and other financial derivative services (horizontal expansion). In the long run, it will also support more cryptocurrencies, providing users with a more diversed range of products and more flexible management of crypto assets (vertical expansion).
The horizontal expansion starts with Konomi’s product line, while the vertical expansion begins with its crypto asset support properties. Such expansionist strategy can satisfy the needs of more users and provide more categories of assets for them, reducing the risk of “Black Swan “ incidents in single asset investments.
Konomi: The Best Has Yet to Come
Bitcoin breaks through $30,000, Ethereum 2.0, and the auction of the Polkadot slots are about to commence. This will not only set off an unstoppable wave of blockchain development, but also thrive the decentralised lending market.
Making full use of the rich sources of opportunities, decentralised lending will be the prime area of focus for Konomi, and diversification and expansion of services follows thereafter. Against the backdrop of closed access to traditional corporate finance and a lack of asset distribution channels, DeFi lending is already gaining more recognition. We are unsure when will Web 3.0 arrive, perhaps it is already making its way, and Konomi is building a new generation of financial facilities in its way.