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RAI Finance

RAI Finance: Cross-Chain Asset Swap Protocol on Polkadot

As a tech startup founder, I have been in a position to look closely at the changes in the crypto scene for the past three years from 2018. In some respects, I made a small wave of change by myself. In the summer of 2018, about two months after the EOS Mainnet launching, I launched DEXEOS, the world’s first EOS-based decentralized exchange. And DEXEOS team is also participating as a BP (Block Producer) of EOS. From 2019, my team and I introduced the League of Traders, a social trading service for cryptocurrency which has become one of the most popular crypto social trading service in South Korea now.

Minkyu Cho, CTO of RAI Finance

Current Problems in DeFi

Problem 1. Scalability and fee issues

According to DeFi Pulse, the top 50 DeFi projects are all based on Ethereum, so current DeFi projects a biased toward Ethereum. For this reason, in order to use the DeFi services, most of the tokens must be replaced with Ethereum-based ERC20 tokens, which inevitably leads to high fees for DeFi services.

Personally, I think Ethereum 2.0 may not be the right solution for solving gas bills inflated by network overload. Although the co-founder of Vitalik Buterin Ethereum emphasizes improving scalability through Layer 2, not only does it take a significant amount of time to update the network technically, it is expected to take more time to activate it due to the lack of user awareness. Considering that each update has been taking at least 6 months, in reality, it will take more than a year to upgrade the network and have widespread usage.

Problem 2. Speed ​​and stability issues

In the case of decentralized transactions in which the token itself must be movedwith smart contracts, even if the structure and code is complete, it is difficult to guarantee the real time transaction due to delays of block creation and confirmation time. In addition, when the DeFi service is operated on the blockchain, block synchronization could be the problems and sometimes disconnection of nodes happens due to network problems. (According to 2 years of decentralized service operation experience, lit is not easy to operate a stable node than expected.)

Moreover, financial derivatives using leverage are also introducing to the realm of DeFi recently. As a service environment to handle this, blockchain still needs a lot of improvement in speed and technical stability.

Problem 3. Liquidity Problem

In the current DeFi market, demand is largely due to two reasons. The first is the token liquidation event of the initial project, and the second is arbitrage trading with existing exchanges. In the case of the first token liquidation event, many project teams are having difficulty in promoting their projects. This is because even decentralized trading systems such as Uniswap basically assume that the project should attracts the attention of many users and generates demand for the token. Secondly, arbitrage transaction, the demand taking the risk will be very limited, as there is a much greater probability that the opportunity for arbitrage captured at this time will disappear performance issues of DeFi compared to arbitrage trading with the existing centralized exchanges.

Problem 4. Continuous supply of potential products

Since the current Ethereum-biased DeFi environment has been developed for many years, it is difficult for new crypto projects to differentiate themselves from existing projects. Even for lending products that offer high interest rates, it is no longer easy to keep providing higher interest once the relative advantage (called beta) of profitability disappears. To solve these problems, we need an alternative to expand the DeFi market and liquidity not only based on Ethereum but also others and to find new betas.

Polkadot is an excellent ecosystem and has promising technology that will expand liquidity across multiple blockchains improving access, liquidity and innovation of assets. Which is why it was so attractive for us to develop RAI Finance on.

Technical advantages of Polkadot

Favorable development infrastructure

EOS, which many people are comparing to Polkadot, had the potential to replace Ethereum, but as of 2020, EOS has not gain the same traction or mass usage.

This is probably due to the infrastructure that is technically incompatible with Ethereum. While a large number of Ethereum developers evolved how to create smart contracts with Solidity, EOS had a separate smart contract development language written in C++. Because of this, EOS developers have not been able to directly enjoy the benefits of smart contract development outputs that numerous Ethereum developers have developed and released competitively through GitHub. So, many of them moved into Ethereum’s ecosystem where there is a large number of developers and a larger community.

The difference between Polkadot and EOS is that if EOS chose to compete by proclaiming itself as an ‘Ethereum Killer’ at the time of its launch, Polkadot prioritized connection with other blockchains. A good example of this difference is technical efforts from parity to run Ethereum’s smart contracts natively through Substrate EVM.

A report from Outlier Ventures showed that in 2020, Polkadot experienced the biggest upsurge in developer activity, at +44%, compared to EOS suffered the biggest decline with a -86% drop in active development.

Better Architecutual Framework

Polkadot envisions the web in which individual users’ data is entirely owned by them. This is called ‘Web 3’, which is completely decentralized. Polkadot wants to connect private/consortium chains with public/unlicensed networks. This allows independent blockchains to exchange transactions and information without relying on third parties through Polkadot’s relay chain. The schematic diagram of the system structure is as follows.

A summary schematic of Polkadot system (source: Polkadot White paper)

1) Interoperability

Polkadot allows applications and smart contracts to seamlessly interact with data and assets on another chain on one blockchain.

2) Scalability

Polkadot uses multiple Parachains to process numerous transactions in parallel. This allows the network to have infinite scalability.

3) Shared Security:

With Polkadot, security is integrated within the network, allowing individual chains to leverage collective security. Polkadot aims to be an interchain with excellent scalability and high security while allowing smooth communication between blockchains.

In addition to the main characteristics above, detailed technical features of Polkadot are introduced in their white paper.

Expectation for the Polkadot Team

It is probably because of the capabilities of the founders and teams that Polkadot is expected to be the next-generation platform behind Ethereum in the blockchain scene.

Gavin Wood, a major founder, is a former CTO of Ethereum who developed the Solidity language, the basis of the blockchain smart contract, and the Proof of Authority (POA) consensus algorithm. Parity Technologies, which is leading the development of the Polkadot project, is also a famous development team that has already proven competence through the development of Parity Signer and Substrate.

Because of this team, many blockchain supporters expect the Polkadot network to be functionally superior to Ethereum. I think the governance of Ethereum, which has grown in size, will not keep up with the speed of Polkadot’s elite development unit and the rapid decision-making of governance.

Vision of Rai Finance

Rai Financial uses Polkadot to solve the problems of scalability and performance, while also solving business problems through intrinsic technologies.

We will find the optimal solution by applying various AMM (Automated Market Making) methodologies to solve the liquidity problem. As AMM’s methodology, we are trying to apply and improve various algorithms of CFMM (Constant Function Market Makers) or LMSR (Logarithmic Market Scoring Rule).

We will provide various innovative financial products that users can select by themselves, including tokenized sets and NFTs. We will also add the functionality of social trading with a large number of users to help them to discover better products.

We know that developing cross chain access and liquidity between heterogeneous blockchains is very challenging and will be a long journey. However, Rai Finance will provide the optimal liquidity for various assets through its continuous development on Polkadot.

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RAI Finance

RAI Finance

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RAI Finance is a decentralized finance application that provides digital asset users with social trading system, aggregated swap on heterogeneous blockchains