Cost-effective DeFi with TRON

What is Decentralized Finance (DeFi)?

Decentralized finance, also known as DeFi, is a fast-growing sector of the cryptocurrency industry. While cryptocurrency coins create a decentralized store of value separate from any government-backed fiat currency, DeFi creates decentralized financial instruments separate from traditional centralized institutions. Technologies like the internet, cryptography, and blockchain give us the tools to collectively build and control a financial system without the need for central authorities.

Most DeFi platforms take the form of decentralized applications, known as dApps. These dApps use a series of smart contracts to automate financial transactions, making them faster, more efficient, and often more affordable than their centralized counterparts. Likewise, because dApps are governed by computer code, which is inherently neutral.

The most popular types of DeFi applications include:

• Decentralized exchanges
• Stablecoins
• Lending platforms
• Prediction markets

One of the most notable projects in DeFi space recently is Uniswap. Uniswap is a decentralized exchange and automated liquidity protocol built on Ethereum smart contracts. Users can buy and sell ERC-20 tokens and supply liquidity in order to earn exchange fees.

At the moment, the vast majority of DeFi applications are built on the Ethereum blockchain. Even though Ethereum has progressed significantly since 2015 and became standard in the area of decentralized finance and smart contracts, it has an issue with further development of cost-effective decentralized applications.

Scalability problem

At the moment, Ethereum is struggling with crippling congestion. The blockchain utilization is currently over 95 percent, making it costly to run applications and use them.

Like Bitcoin, the main reason for the Ethereum scalability problem is the network protocol that each node in the network has to process each transaction. Ethereum implements a slightly modified version of the proof-of-Work (PoW) consensus mechanism. Every Ethereum node has to verify that the miners’ work is valid and keep an accurate copy of the current network state. This greatly limits the transaction processing capability. Currently, it can only process 12–15 transactions per second.

This issue significantly limits development and usage of decentralized applications on Ethereum blockchain. The average fee paid by Ethereum users per one transaction have reached a new record average of over $14.5 recently.

As the DeFi ecosystem continues to grow, the urgency for scaling solutions that can ensure network usability continues to rise.

Possible solutions

Ethereum 2.0

Ethereum 2.0 is a long-planned upgrade to the Ethereum network which promise to reduce energy consumption, allow the network to process more transactions, and increase security. Technically speaking, Ethereum will become a Proof-of-Stake blockchain and introduce so called shard chains. Ethereum 2.0 is regarded as the long-term solution that can bring stability to the network, and the long-awaited upgrade is set to be released in 2020.

While the initial release of Ethereum 2.0 is a noteworthy event, it will not bring immediate changes. The first iteration will serve as a testing ground for what will eventually become the only Ethereum. This change is estimated to take from one to two years. In fact, Ethereum’s creator, Vitalik Buterin, recently admitted that the team underestimated how long the sharding and Proof-of-Stake features that characterize Ethereum 2.0 would take to develop.

Second layer networks

Second layer solutions aim to provide all, or most of the functionalities and security of their underlying blockchain without using it, or more accurately, using it in a different way. This can be helpful in the short-term, as it relieves the Ethereum network of congestion, and in the long-term, keeps the blockchain free of “unnecessary” transaction history.

The concept of second-layer networks is not new, nor is it unique to Ethereum. Bitcoin itself is no stranger to congestion and scalability issues. RSK and the Lightning Network are examples of such solutions. Today, there are a few independent projects that leverage this same concept in order to provide an immediate solution for Ethereum’s scalability problems as well as a better ecosystem for the DeFi industry.

But layer-two solutions are complex and difficult to develop because they walk a very thin line between security and convenience. Blockchain networks are safe because every single transaction is recorded on an immutable ledger, however, these solutions bypass this constraint.

Alternative blockchains

Since 2015, many developers have indeed taken the opportunity to build their own engines, most often designed to overcome the same issues that Ethereum 2.0 is seeking to solve and even more, in some cases. We will review most notable competitors.

RSK

Rootstock (RSK) is a smart contract platform compatible with Ethereum that is connected to the Bitcoin blockchain through sidechain technology. RSK was launched in late 2017 and caused much excitement around the platform’s promise to bring smart-contract functionality to Bitcoin. Furthermore, with the capacity for many hundreds of transactions per second, it was one of the first real threats to Ethereum in terms of scalability. RSK has capability of processing about 400 transactions per second which is better compared to Ethereum, but there are alternatives with capability of processing more than 1,000 transactions per second.

And since RSK doesn’t have its own token and hasn’t launched any kind of crowdfunding, it does not have the massive funds at its disposal that alternatives have.

EOS

EOS is a blockchain designed to compete with Ethereum and was promoted as “Ethereum Killer”. Like Ethereum, it supports smart contracts and distributed applications, while also providing high transaction throughput, free transactions, and improved performance. EOS relies on delegated proof-of-stake (DPoS) consensus. Stakeholders continuously elect 21 block producers, who process transactions and make governance decisions.

EOS uses WebAssembly (WASM) to develop smart contracts. While WASM is not a programming language, but it will give developers to code in the language of their choice and compile into a bytecode that can run on a supported browser. Even though WASM has some advantages for developers, at the moment, main language for developing smart contracts in EOS is C++ which is notoriously known for its steep learning curve. It also means that EOS smart contracts are not compatible with Ethereum.

Another issue is spam transactions. Currently, EOS team claims that their blockchain is able to process 50,000 transactions per second. EOS does not charge transaction fees to end-users. Instead, dApp developers must stake EOS to reserve resources such as RAM, CPU, and network. Then, they can use those resources to reserve bandwidth for their DApp transactions. In theory, these limitations should prevent “spam” transactions from overloading the blockchain, but in reality, issues still arise.

Even though EOS is more efficient system than Ethereum, it implements different economy model. Both blockchains have vastly different communities and are used for different kinds of applications. Migration of Ethereum’s smart contracts to EOS will require additional resources.

Cardano

Cardano has been one of the most hotly anticipated rivals to Ethereum for some time. The platform was developed by one of the original co-founders of Ethereum, mathematician Charles Hoskinson, who left Ethereum in 2014 and subsequently founded IOHK, the company building Cardano.

Cardano blockchain and its advanced Proof-of Stake consensus algorithm, Ouroborous, the first peer-reviewed consensus algorithm in the crypto space. At the moment Cardano can process about 1,000 transactions per second.

Cardano has chosen Haskell and Plutus as their languages of choice. Haskell will be used to code Cardano, while Plutus will be used for the smart contract creation. Both of them are functional languages. Even though functional languages exist for several decades and became quite popular last few years, they are rather complex to learn compared to imperative languages. All traditional programming languages like C++, Java, and even Solidity are imperative programming languages. Ethereum’s first language for smart contracts was LLL, a functional programming language, with Lisp-like syntax. But it didn’t become popular and was superseded by Solidity as main language for smart contract development in Ethereum. So, it means that Cardano smart contracts are not compatible with Ethereum and developers will need to migrate their code to new language which is can be error prone process.

TRON

An early rival to Ethereum, Tron launched in 2017. Under the leadership of Justin Sun, the platform made strides with its acquisition of BitTorrent. In March 2019, Tether announced it was launching a TRC-20 version of USDT. Within six months, Tron-based USDT had grown to 12% of the total coins in circulation, due to Tron’s superior throughput compared with Ethereum.

The TRON code base was originally a fork or copy of Ethereum and it uses a fork of the Solidity smart contract language, which was the programming language developed for and most popularly used on Ethereum. As a result, Ethereum smart contracts and token standards are compatible with the TRON ecosystem.

The main technical difference with Ethereum is that TRON uses a different consensus mechanism for adding and verifying transactions on its network. As EOS, TRON uses Delegated Proof-of-Stake with 27 elected Super Representatives who produce blocks for the network. This consensus mechanism allows TRON to achieve capability to process about 2,000 transactions per second.

Conclusion

Of course this is not full list of potential Ethereum competitors. There are other blockchains like Tezos, NEO, Cosmos, Waves, etc. But if we talk about cost-effectiveness we should consider at least two things. One of them is scalability and low transaction fees. Another is development costs.

Ethereum was the first platform to build smart contracts and dApps and there are plenty of code for it. Any new platform which introduce new tools and languages to create smart contracts will struggle to surpass Ethereum by this criteria. Keeping all this in mind we believe that only TRON is suitable to build cost-effective DeFi solutions in the near future. It can process up to 2,000 transactions per second and it’s compatible with Ethereum. It’s much easier to migrate from Ethereum to TRON compared to any other blockchain platform.