Written by Malik Corbett
Dark Days ahead for the Global Financial System
The perfect storm is brewing for the mass adoption of cryptocurrency; EOS DeFi will be the gateway through which people discover the true power of blockchain technology. As the Federal Reserve warned yesterday, the US is in a dire economic situation and the Fed plans to keep interest rates at zero through the end of 2022. In response, companies have racked up historical amounts of debt over the last 6 months. The Fed hopes things will hum along if global growth gets back on the fast track. If growth doesn’t come back then the credit bubble which the Fed has kept alive with an unprecedented amount of stimulus since the pandemic crisis, will burst and the party will come to an end.
Sprinkle in a U.S. election in November, rising U.S./China tensions, the COVID-19 pandemic and we can’t forget about the Brexit negotiations on the future relationship between the U.K and the European Union, when all is considered, a so called “V” shape recovery in the second half of the year is unlikely. As the current financial system faces dark days ahead, decentralized finance or DeFi has an opportunity to shine.
The Opportunity for EOS DeFi
The current state of DeFi is dominated by Ethereum-based projects; however, there are many technical challenges limiting further growth, such as latency and scalability that have yet to be conquered on Ethereum. To be frank, Ethereum is no longer suitable for DeFi. In fact many of the technical challenges that are facing Ethereum have been solved by the EOSIO blockchain.
Although not perfect, EOSIO architecture makes the platform fundamentally suitable for DeFi, e.g. 500 millisecond block times. In general, EOSIO-based blockchains are designed handle the number of transactions needed to support Decentralized financial systems.
I can’t understate the importance of scalability to the DeFi space. Scaling a blockchain is very difficult as can be seen with Bitcoin and Ethereum. Scalability in the context of blockchain means that the blockchain can process fast transactions as well as provide low cost services to the end users while remaining permission-less, trust-less and decentralized enough to remain secure.
Currently, DeFi is dominated by Ethereum projects which has been great in showcasing prototype models for what is possible, however Ethereum DeFi projects fall short in providing practical examples for serious finance. The culprit is the underlying Ethereum base layer itself that is the problem. Ethereum is structurally flawed from a design perspective and is currently too slow and incapable of supporting DeFi. And Ethereum 2.0 won’t solve the problem which was well stated by Kyle Samani from crypto hedge fund Multicoin in a recent blog post on the company’s website where he writes:
There is a huge opportunity for EOS DeFi and the stars seem to be aligning. There is no blockchain proven to be more robust than EOSIO blockchain. According to data from blockivity a protocol analytics website, EOS mainnet is consistently ranked number one in transactions processed and no other blockchain is even comes close.
Scalability is paramount for the success of DeFi. You can’t have efficient capital markets if the underlying technology is too slow. As it relates to smart contract enabled blockchains, high latency has a negative effect on DeFi smart contracts and the execution of risk parameters. In fact a slow system renders a smart contract risk parameters ineffective. For example, how could a lending platform built on a slow blockchain effectively provide a liquidation mechanism that can be trusted between the lender and borrower. In finance, fifteen seconds between price updates is simply too long for a risk management system that supports trillions of dollars worth of collateral.
With Ethereum’s 15-20 second block times as well as high transactions cost and front-running, how could serious traders trust a lending smart contract to execute liquidation requirements based on specific risk parameters at the contract level when the protocol itself is slow and bloated. This level of risk makes lending on Ethereum expensive and inefficient for serious finance.
With the robustness and speed of EOSIO at the settlement layer combined with powerful layer-two middleware solutions such as LiquidApps ($DAPP), Chintai ($CHEX), and Equilibrium ($EOSDT), DeFi for serious finance is quickly becoming a reality. EOS DeFi is on the rise.