Decentralized Finance or Defi is a movement of the financial sector that leverage decentralized technologies, particularly blockchain networks. It transforms the traditional financial products to be secured, trustless and transparent without any intermediaries.
The Defi product such as peer-to-peer lending, Micro-lending, payment platform … oftenly used a smart contract on Ethereum network. Although Ethereum is a good blockchain platform, It encounters scalability problems. Let’s imagine you are developing a payment system on Ethereum, the maximum transaction per second that Ethereum network can process is around 15–17 TPS. You are providing the online payment for an ecommerce website so that users can use your token to buy goods and services on that website. Everything worked fine until the black friday. The TPS suddenly increased to hundreds or thousands. Your system … downs, It’s obviously that your system cannot handle such a big transaction and that’s the blockchain scalability problem that you are relying on.
UniChain was born to solve the scalability problem. With the capacity of processing up to million transactions per second by leveraging the side chain architectures and the flexible smart contract system, UniChain is suitable for any Defi solutions from payment platform to peer-to-peer lending network … Let’s have a close look at some Defi solutions that can be deployed on UniChain
The lending platform works like the traditional bank except that It does not depend on anyone or any organization to perform its functions.
In a traditional bank, When you open a savings account, You put your money on It and earn the interest on that (for example you earn 3% per year). The bank will use your money and let others borrow it with the rate much higher than your interest rate (for example 6%). The bank will earn money from the different interest rates (3%). You smart people will soon realize that It will be better for both lenders and borrowers if they have a way to make a transaction directly instead of an intermediary. Another problem is that you are not able to use your deposited, interest-earning money in any other way once it’s in the bank. What if you could spend the money your savings earned while still saving. A lending platform using smart contracts on UniChain will solve the problems.
The following diagram explain how Lending platform works
- The platform owner (or operator) create the smart contract which can perform the functions such as deposit, withdraw, lock coin/token, calculate the interest rate … and then deploy It on UniChain network
- Lenders deposit coins to the platform contract which include the condition for borrowing such as the minimum interest rate, the maximum amount of each transaction … The native coin may be converted into another token, depend on each platform and approach
- Borrowers borrow the coin/token on the platform. They can use that token to exchange with other tokens or do anything else. The token will be locked (cannot withdraw) and if the relative value is dropped so far, a liquidated procedure may occur automatically to make sure that the loan is safe.
- Lenders receive the interest rate automatically and this can be used for other borrowing
The traditional payment especially the cross-border payment systems have many disadvantages such as the high transaction fee (normally from 2 to 5% of total value) and the time delays due to the physical distance.
Let’s imagine you are selling some products on an ecommerce website from Japan. customers from the US decide to buy It and pay by their visa or mastercard. At the first glance, It seems quite simple. But let’s have a close look into the process, It’s complex and have at least the following steps:
- When customer completes the payment (for example $50), The payment information is transferred from credit card association to the customer bank and the customer’s bank account immediately deducted $50
- Your bank, customer’s bank and credit car association reconcile all transaction everyday
- Your bank account get deposited a corresponding amount after transaction fee is deducted (It includes the transaction fee and the processing fee, $5 for example)
- You withdraw money from your bank account. Because you are Japanese, You need to convert USD to JPY and you lost another amount because of the exchange rate.
All processes above may take up to 5 business days from customers completing their payment to the day you receive the actual money.
With the capacity of processing up to million transactions per second and the block time is just around a second, UniChain can help to improve the cross-border payment system, the transaction will be processed in seconds with a very little transaction fee. Beside that, all business logic can be applied by leveraging the smart contracts on UniChain networks (for example: lock a payment, only send money to merchants when some conditions are met …). The other interesting thing is that the system does not depend on any bank organizations, you are free and totally control your fund.
UniChain also provides many other Defi solutions such as the security token exchange, the stable coin, decentralized exchange, real estate exchange … Let’s try and explore.