What will Substrate bring to the DeFi ecosystem?
Recently, The concept of DeFi has continued to heat up especially with the prelude to the issuance of Compound governance tokens. The total locked-up assets of DeFi have exceeded an unprecedented $6 billion. It can be said that almost all operational DeFi applications are built on Ethereum. However, with the launch of Polkadot and the sophistication of the Substrate application chain development framework, more and more new projects choose to develop DeFi application chains based on Substrate. So what is the difference between a prosperous Substrate DeFi application ecosystem and the current DeFi?
1. Better performance and better user experience
Many DeFi projects are operated with overload which is due to the limitation of Ethereum’s performance, thus, make it difficult to support the fast growing DeFi market. In addition, Gas costs are ridiculously high, and even so, there are still a large number of transactions that cannot be validated in time. For example, the basic cost of a recent transaction with Uniswap will be close to $10, and if you want to use the aggregator 1inch, the basic cost will reach an astonishing $40. This is only a “referral” fee. In fact, if this referral fee is used, it will happen occasionally that the transaction has not been packed after 10 minutes. Recently, I tried to complete a transaction on UNISWAP and it took a total cost of 50 dollar to secure this transaction. Therefore, it can be deemed as a pain point for DeFi on Ethereum. Why does the IDO of a popular project make me spend more gas fees to transfer an ether? The current situation is really unfair to the users where the miner simply earns too much. The solution to this problem is using Substrate to develop a DeFi application chain which allows us to create and optimise a chain with better performance than Ethereum. Therefore, the system has minimal efficiency loss as it can maximize the performance of any DeFi application without worrying about congestion, high administration fees and long waiting time for transaction to validate.
On Ethereum, users have to hold Ether to pay for the GAS no matter what applications they used which can prevent many users from trying it at the first place. However, thanks to the operating mode of the chain developed based on Substrate, users can directly use the native token of the DeFi application to pay for Gas. In addition, various parameters can be defined by the project party. For example, you can define the charging rules of Gas fees and subsidize some user or you can choose a relatively small block interval to reduce the waiting time of users. All of this allows users to use Substrate-based DeFi applications, the experience will be close to the centralized applications that they usually use.
Solving the biggest pain point of DeFi at present, I believe that the DeFi application chain developed based on Substrate can shine.
2. More controllable security and seamless application upgrades on the chain
The security and scalability of smart contracts are also a major issue. In order to fix vulnerabilities and add new features, the applications we usually use are being upgraded constantly. However, Ethereum is inherently unfriendly to contract upgrades. For example, the previous MakerDAO on Ethereum was too coupled. Therefore, the process of upgrading multi-asset mortgage at later stage is extremely time-consuming and labour-intensive. Well, the agency-based contract structure can solve this problem to a certain extent, but its structure is more complicated and its flexibility is relatively low, which is also the source of loopholes. To make matter worse is that for DeFi projects that carry large amounts of assets, a small loophole can destroy the entire project. And as the composability of DeFi becomes more and more complex, the combination of two DeFi projects that have no loopholes may create loopholes (such as Dforce and ImBTC) that are sufficient for hackers to drain all assets. These vulnerabilities are devastating to the DeFi projects, but Ethereum does not care about these issues except for the recovery of the stolen funds at the end of The Dao incident. In most of the cases, the project Operators and users have to bear the lost at their own cost. However, The DeFi application chain developed based on Substrate can guarantee such problems will not occur due to the Substrate’s natural support for on-chain upgrades which can easily upgrade and maintain applications or repair vulnerabilities. Most importantly, users can use immediate online remedial measures, governance, and rollbacks to minimize or even eliminate the losses even if huge losses are caused by loopholes. As a result, the killing factor of the current Ethereum based DeFi applications is no longer exists.
3. Governance friendly
We have mentioned governance in the previous section because we want to highlight that governance friendly is the core advantage of using Substrate. At present, Ethereum’s DeFi projects are increasingly inclined to joint community governance. Projects need to develop their own governance modules, or add governance functions based on Aragon. However, all of this becomes more direct and explicit with the use of Substrate. Thanks to Polkadot’s emphasis on governance, the governance module can be easily added by Substrate. And this governance module can be combined with the on-chain upgradeability mentioned above, so that the governance module can complete almost any transaction, even including replacing the governance module itself. Therefore, Substrate’s flexible and powerful governance system will surely provide strong support to the DeFi project of the DAO model.
4. A powerful tool with easy development and maintenance
We know that the development of Ethereum’s Dapp is relatively convenient but Substrate is even more incisive on this aspect. The Substrate application chain is based on modular development, and the project structure is clear and easy to maintain. The official and third parties provide a large number of ready-made modules for direct use or reference. In just two years, the ease of use of the development tool chain has even surpassed that of Ethereum in some respects (knowing that it has taken 5 years for Ethereum to reach this step). Now using these development tools, Substrate-based DeFi applications can easily develop front-end UI, blockchain browser and other tools. Thanks to all this, Substrate-based applications can obtain more advantages over Ethereum applications without significantly increasing development costs. As a result, the DeFi projects can focus on business logic.
5. Automatically gain interoperability
The DeFi project developed by Substrate can be interoperable if it is connected to Polkadot as a parallel link. This interoperability is not limited to other DeFi parachains or smart contract DeFi within the Polkadot ecosystem since Polkadot will have cross-chain bridges to connect to various mainstream blockchain ecosystems (such as Bitcoin, Ethereum, Cosmos, etc.) Therefore, the DeFi project naturally gains the ability to interoperate with these ecosystems. Therefore, we can be sure that our DeFi products can easily contain BTC assets without worrying about how to add the RenBTC module.
Due to the composability of DeFi, we can said that the whole is greater than the sum of its parts. Therefore, if there are not a large number of DeFi projects to choose Substrate and Polkadot, these mentioned above will become meaningless. But the good news is that we have now seen a large number of Substrate-based DeFi projects, which include various businesses on the existing Ethereum DeFi including lending, stablecoin, Dex, asset securitization, etc. The seeds have been planted for now so let us hope that as Substrate and Polkadot continue to grow and the DeFi world can evolve to a new level and reach out to the public as soon as possible.
