2020 is the year of DeFi development. Although there are many concept sectors this year, such as cross-chain, storage, and NFT development, the headlines must belong to DeFi. Looking back on 2020, DeFi has become an important force to promote the development of the blockchain industry; looking forward to 2021, DeFi is expected to play a more influential role than 2020.
The beginning of DeFi is considered to be the creation of MakerDAO, an Ethereum-based protocol in December 2017, but the real rise of DeFi is the wealth effect brought by Compound liquidity mining in June last year. After more than half a year of rapid development, DeFi has become the third application scenario that has been proven and tested by the market after Ethereum.
But what we cannot ignore is that the development of DeFi is still at a fairly early stage. It has only been half a year since Compound liquidity mining started in June last year; the concept of DeFi was only proposed in 2019, and it has only been more than a year since MakerDAO came out. It's only more than three years; DeFi is still in an early stage of brutal development. The development of DeFi is rapid and it has shown sufficient development potential, but after all, the development time is too short, and its own heritage needs to be precipitated. At present, there are still many aspects that need to be improved. Only if these are improved, DeFi can be more Good development.
1) Scalability
Ethereum is the main platform that is currently active in DeFi. The development of DeFi on Ethereum was the earliest and accumulated the most DeFi developers. However, the high fuel cost of the Ethereum network is often dozens of U, which severely dampens the enthusiasm of users to participate in DeFi and keeps some small capital retail investors out of the door.
We now see that Ethereum 2.0 is already on the way and has achieved phased results. We believe that Ethereum will have a better performance in the future to support its future development. At the same time, the urgent needs of the second-tier network are also driving many second-tier network solutions, such as state channels, Plasma, side chain cross-chain, and rollup, which have all been refocused in the near future. The better ones are the Loopring protocol. Achieving lower handling fees and faster transaction speeds has also attracted the participation of many users.
2) Security
As an open source protocol, DeFi is bound to be attacked by hackers as long as it is a program. An excellent project generally has a process such as smart contract auditing. Smart contract auditing reduces the risk of vulnerabilities in the contract code to a certain extent. However, it should be noted that the contract audit does not fully guarantee security. Risks must be carefully assessed. Attacks on the DeFi protocol are also happening from time to time.
Recently, the DeFi insurance industry rookie Cover has a thunderstorm. In a short period of time, hackers used the project's own code logic loopholes to attack twice in a row, resulting in the issuance of more than one trillion tokens, which directly caused the token Cover price to plummet from $800 to over 99%.
In the world of DeFi, Code is Law is advocating, then do the code well and achieve the ultimate, leaving no opportunities for hackers.
3) Single asset
The current cross-chain technology is not mature enough, and the mutual circulation of high-quality assets in different mainstream blockchain networks is still a problem. For example, if you want to realize the convenient circulation of different assets such as BTC, ETH, XRP in the lending and transaction scenarios, it is necessary to realize the intercommunication between chains. However, because the cross-chain technology is not mature enough, many high-quality assets cannot be interacted, which also limits the development of DeFi.
At present, we have also seen many teams in the industry making attempts in this area. The most mainstream solution is to lock and map different types of assets on a specific blockchain network, such as imBTC, RBTC, etc., which is through 1:1 The Ethereum Token issued by BTC is anchored, and holders can transfer, redeem and exchange freely.
We also look forward to more cross-chain solutions to bring new vitality and new development to DeFi.
4) Compliance
DeFi is a subversion of the traditional financial industry. Although DeFi is not enough to pose a real threat, it still shows enough potential for its low trust cost and low transaction cost. Any disruptive change will cause Traditional blocking, DeFi is no exception.
The censorship resistance of DeFi and the unstoppability of its operation on the chain will become an uncontrollable factor for the authorities, so there will be negative attitudes to hinder the development of DeFi.
Compliance is currently the most difficult thing to achieve and may be the most difficult to determine factor in the development of DeFi. We hope to have a good solution to achieve the compliance of participating assets on the chain.
5) Experience
For the currency circle, experience has always been a problem to be solved, and DeFi is a product that is more difficult to understand and more difficult to operate.
Users using cryptocurrency to participate in DeFi are different from simple behaviors such as purchases and transactions on exchanges. This requires users to know how to create wallets, manage private keys, and perform signatures and other operational procedures, as well as the smart contracts involved, mortgage lending, and algorithm stability. Coins and other concepts have a very clear knowledge and understanding, which is very cumbersome for beginners to operate.
Of course, there are also congested networks and high transaction fees, all of which have a very negative impact on the user experience of Shattered Feather.
Fortunately, we see that some changes are also taking place. Many projects have launched cloud-based projects, so that users who are new to the currency circle can simply participate. But this kind of centralized operation is not what we want. We still look forward to a more concise, more usable, and more convenient decentralized way to join DeFi.
At present, DeFi still has some problems, but these problems will only become a stepping stone for DeFi development. The development of DeFi, the wealth effect it brings to real money, will never stop. In 2021, DeFi will gradually mature, becoming easier to use, lower cost, and higher security, which will allow more people to participate in this field. In 2021, DeFi will still be the most worthy of attention and investment in the encryption field.