10 ms·

Decentralized Finance: On Blockchain- and Smart Contract-Based Financial Markets

146 points by avyfain 6y ago

blhack 6y ago
Where this is going to get really wild: tokenized securities backing the blockchain equivalent of an ETF. Imagine you program a smart contract which is the frontend of a algorithmic trading system. That future is coming.
- Proven 6y ago
  ??? That changes nothing.
- throwaway1777 6y ago
  That already exists in the form of yield farming.
  - blhack 6y ago
    Not as a frontend for traditional financial instruments as far as I know. Yield farming just trades other crypto asset, doesn't it?
    - robkop 6y ago
      Depends, there's some more complex formats defi systems out there now. Synthetix for example allows you to buy SNX tokens and then yeild farm on these against a B-Book which is filled with synth tokens (the synth tokens are derivatives of real assets e.g. sUSD, sAUD, sXAU, sFTSE) so you can trade against real financial instruments. You can take a look at their litepaper [1] if you want to know more. [1]: https://docs.synthetix.io/litepaper https://docs.synthetix.io/litepaper
- 2bluesc 6y ago
  Kind of close with TokenSets[0] managing Mirror[1] backed assets. Things like the DeFi Pulse Index[2][3] I believe are automatically re-balanced by evaluating the weights on the third week of the month and then applied the first business day of the following month. I'm not sure if a human is involved? [0] https://www.tokensets.com/portfolio/dpi https://www.tokensets.com/portfolio/dpi [1] https://mirror.finance/ https://mirror.finance/ [2] https://www.tokensets.com/portfolio/dpi https://www.tokensets.com/portfolio/dpi [3] https://www.pulse.inc/ https://www.pulse.inc/
- elliotec 6y ago
  How close is Tzero to what you're talking about? https://www.tzero.com/ https://www.tzero.com/
- slickrick216 6y ago
  Check out keeperdao and keepers. They sort of do what you are describing.
- paulryanrogers 6y ago
  Common advice is to only invest in what you understand. If these markets are so obscenely complex only insiders can understand them then doesn't that limit their potential?
  - suikadayo 6y ago
    It'll eventually be abstracted to where it's simple to be used by regular folks, or it'll be integrated into existing infrastructure.
    - hanniabu 6y ago
      Yup, I don't understand how a lot of traditional financial instruments work but I still use them. At least these are transparent.
      - xur17 6y ago
        That's one thing that I've really enjoyed so far - a lot of these projects are essentially lego bricks, and I can (and do) try and understand how all of the different pieces fit together. That's something that certainly isn't possible with a lot of traditional finance. Even if I wanted to figure it out, I don't have access to see everything.
        suikadayo 6y ago
        Speaking of lego bricks, and I haven't used it yet myself, but https://furucombo.app/ https://furucombo.app/ looks really interesting!
        xur17 6y ago
        I've played around with it a bit. I actually found a juicy arbitrage opportunity, and was trying to use it to chain a few trades together to take advantage. Unfortunately it didn't support one of the trading platforms I needed to use, so I ended up just manually making the transactions separately. This really drove home how inefficient and full of opportunities Ethereum is if you know where to look.
- rawtxapp 6y ago
  In many ways, the future is here, there are billions of dollars locked in these defi projects, I'd say now it's more about adoption and user education.
  - xur17 6y ago
    And scaling. Transaction fees have gotten insane lately, scaling solutions cannot come soon enough.
    - rawtxapp 6y ago
      100% agree, right now it's like 80$ for a uniswap exchange, 200$ to open a maker vault, 100$ to transfer tokens, etc. I'm really looking forward to eth2 which will hopefully land without too much issues or delays.
      - zaarn 6y ago
        It's not as bad if you're willing to wait a bit. Token transfers are like 10$ if you set the gas price to around 120 Gwei, should validate within an hour or two. The tricky bit is the exchanges, though in my experience, the worst was around 60$ fee for a swap at a busy time.
    - dpraburaj 6y ago
      Fees on other chains like Binance Smart Chain(EVM compatible), Terra and others are quite low now(around 0.2 - 1 USD per transaction). PancakeSwap is a Uniswap alternative on BSC and TerraSwap is a Uni alternative on the Terra blockchain.
      - xur17 6y ago
        The issue is that all of the platforms people want to interact with right now tend to be on Ethereum (which is part of the reason it is so expensive).
- nugget 6y ago
  I'm advising a team that is working on this problem right now; it will be a crowded field, but there are multiple distinct approaches. I'd describe the challenge as equal parts technical, legal/regulatory, and marketing/comms. If anyone is interested in potentially working on this or learning more, send me an email.
- timdaub 6y ago
  I'm attempting to build a data set ETF: https://rugpullindex.com https://rugpullindex.com
- tcgv 6y ago
  DeFi is a very innovative field indeed. What I find most appealing is that some popular derivative protocols are yet inefficient in some ways, which means there is a lot of room for new solutions to come along. For instance, I'm interested in options trading, and there is a lot of competing protocols [1] each one with it's advantages and disadvantages. One of the most popular, Hegic [2], employs liquidity pools pricing options at a really expensive value due to a simplified pricing model (good for writers). Shameless plug: I myself have been playing with smart contracts in my free time and deployed a tokenizable options trading decentralized exchange [3] (on kovan testnet nonetheless!) trying to address some os these points. Learned a lot implmementing it, and I find amazing that anyone can come up with their own DeFi solution. [1] https://medium.com/coinmonks/an-update-of-a-comparison-of-decentralized-options-platforms-91b14d3a6170 https://medium.com/coinmonks/an-update-of-a-comparison-of-de... [2] https://www.hegic.co/ https://www.hegic.co/ [3] https://github.com/TCGV/DeFiOptions https://github.com/TCGV/DeFiOptions
deleted 6y ago
[deleted]
seibelj 6y ago
This is a great summary, and HNers who knee-jerk hate crypto and say it's worthless should especially give it a read. It's becoming clearer that more and more finance is going to move to blockchain rails. IMO this is the future, and yes I have put my money where my mouth is on that opinion.
- deleted 6y ago
  [deleted]
- udfalkso 6y ago
  How does one best bet on the future of DeFi?
  - slickrick216 6y ago
    Tricky problem. I’d probably buy some ETH/FTM/DOT to cover speculation on the infra side. Then get some YFI/AAVE/SNX/ROOK to cover the app speculation although there’s hundreds here to choose from. The approach I’m taking is a blockchain agnostic one. There’s lots of middleware projects with tokens such as GRT, REN and LINK. I see middleware growing really as it has utility in defi but also other applications.
  - 3001 6y ago
    buy etherum
  - hanniabu 6y ago
    Ethereum (ETH) and DeFi Pulse Index (DPI). Everything is built on Ethereum so the value of the network will be reflected in ETH. There are a few groups working in how to calculate the total value on chain as well as how this value should be related to and reflected in the price. DPI is a basket of DeFi tokens so you'll receive exposure to the big players through asset. You can think of this like an ETF.
  - deleted 6y ago
    [deleted]
  - rawtxapp 6y ago
bromquinn 6y ago
This seems to be a great ‘intro to defi’ read. Can someone with knowledge of defi point out any deficiencies or inaccuracies here? Are there better ‘intro to defi’ papers that newcomers should read?
xvilka 6y ago
Cardano (ADA) looks more promising for the DeFi applications. It's better designed and written in a safer, purer language (Haskell).
- suikadayo 6y ago
  Cardano doesn't have smart contracts yet, and with Metcalfe's Law and network effects, Ethereum is already leading with DeFi.
  - xvilka 6y ago
    They are almost there with Plutus[1][2] and Marlowe[3]. [1] https://docs.cardano.org/projects/plutus/en/latest/ https://docs.cardano.org/projects/plutus/en/latest/ [2] https://github.com/input-output-hk/plutus https://github.com/input-output-hk/plutus [3] https://docs.cardano.org/en/latest/marlowe/marlowe-explainer.html https://docs.cardano.org/en/latest/marlowe/marlowe-explainer...
- arberx 6y ago
  "It's better designed" - that's a very subjective comment. There are already a bunch of other chains that do what ADA seeks to do like Tezos, Polkadot, and Solana. Why haven't those gained traction? Also, while it does make dapps safer, the lack of functional programming experience in most programmers makes it diffcult for me to think Cardano will do any better.
  - xvilka 6y ago
    Polkadot certainly gained traction recently - together with Cardano they occupy 3 and 4 places on market capitalization if you exclude Tether[1]. [1] https://coinmarketcap.com/ https://coinmarketcap.com/
    - hanniabu 6y ago
      Market cap is not adoption. Look at how many projects that were in the top 20 in 2017 that aren't the anymore. LSK, Neo, EOS, NEM, OMG, DASH, BTG....goes on and on
vishakh82 6y ago
Shameless self-plug on how DeFi can be done more robustly using functional programming constructs: https://vishakh.medium.com/bringing-true-composability-and-robustness-to-decentralized-finance-bbd6945ca03a https://vishakh.medium.com/bringing-true-composability-and-r....
- arberx 6y ago
  I don't think anyone disagrees with this. The reason functional languages aren't used to write smart contracts is the same reason functional languages aren't used to write a majority of software projects...adoptability/lack of knowledge/interest.
arberx 6y ago
Some of the protocols/dapps mentioned in the article that are great entry points into DeFi: - https://uniswap.org/ https://uniswap.org/ - https://aave.com/ https://aave.com/ - https://makerdao.com/ https://makerdao.com/ - https://yearn.finance/ https://yearn.finance/
- rawtxapp 6y ago
  MakerDAO (aka oasis, dai system) is one of the coolest software project I've ever used, highly recommend anyone checking it out. It's essentially a system of smart contracts and surrounding system which create a stablecoin pegged to the dollar (1DAI=1$) backed by crypto collateral. One of the benefits of that is, you can access your crypto and use it without selling your position, which means you're not paying any capital gains taxes. There's a 4% stability fee with borrowing against your collateral (notice it's not an interest, it's a fee, which means many people who can't deal or don't want to pay/receive interest can actually use it). 4% is a drop in the bucket when you consider gains on your assets and a lack of capital gains tax. p.s. I'm a long term BTC believer who always thought most of these projects were scam until I've actually started researching and trying to understand it.
  - hanniabu 6y ago
    > always thought most of these projects were scam until I've actually started researching and trying to understand it. Unfortunately these seems to be the case for most people. What have you this notion that it's all a scam? What it news pundits? Twitter/Reddit threads?
    - rawtxapp 6y ago
      I've been in crypto since 2014 and was here for 2017 when all ICOs that did absolutely nothing were being pumped and dumped, so I wrote off ether for a few years until defi kept creeping up in my news couple times. I think there's still lots of scams out there, but the big projects like Maker, uniswap, compound, etc, have made me change my mind.
TameAntelope 6y ago
If I wanted to know everything about how these systems worked, where would I begin? Is there anything comprehensive that'd take a while to digest?
- seibelj 6y ago
  I have considered writing a book about this stuff but it's an insanely bad use of my time vs. building tech in this space from a profit perspective. Defi is the highest possible way that a software engineer can earn money in 2021 without being some high-up FAANG architect or hit the startup lotto. Small teams are making millions or tens of millions of dollars, and they are making actual value (not ICO scams like in 2017!) with billions of dollars flowing through it. If you want to break into this space, start with the bitcoin white paper, read this book[0], then do the Ethereum white / yellow papers, start messing around with smart contracts, then consume every possible piece of knowledge you can, because it's all spread out everywhere without good central repositories of knowledge. Defi is protocolized finance. It's making building blocks of financial tools that people and projects fit together in new ways to accomplish various things (earn interest, hedge, go leveraged long, buy insurance, etc. etc. etc.). The possibilities are truly endless and the space is open for innovation like never before as there are no rules and regulations, and there never will be any! Good luck! [0] https://www.amazon.com/Mastering-Bitcoin-Programming-Open-Blockchain/dp/1491954388/ https://www.amazon.com/Mastering-Bitcoin-Programming-Open-Bl...
  - lbotos 6y ago
    > there are no rules and regulations, and there never will be any! Good luck! https://en.wikipedia.org/wiki/Virtual_currency_law_in_the_United_States https://en.wikipedia.org/wiki/Virtual_currency_law_in_the_Un... https://www.wired.com/story/janet-yellen-consider-limiting-cryptocurrency/ https://www.wired.com/story/janet-yellen-consider-limiting-c... --- Governments around the world, at any time, could outlaw bitcoin or cryptocurrency. At the moment, it's accepted, but the minute it's seen as 'uncontrollable' expect that regulations will be attempted.
    - 6y ago
hn_throwaway_99 6y ago
Apologies if this is a bit of an ELI5 request, but after many years I still don't understand the real-world uses of smart contracts. There was this post on HN a couple years ago, https://news.ycombinator.com/item?id=19225857 https://news.ycombinator.com/item?id=19225857, and I still don't understand how any of those issues are addressed. Specifically what I'm struggling to understand is that most (all?) real-world contracts require some information about the real world: The price of corn (or corn futures), whether the rental apartment was as described, whether the sneakers were authentic, etc. But whenever you need this real world information, at some point you need an oracle, or a consensus of oracles, and at that point I don't really see the point of using blockchain as you have to trust the oracles. Would really appreciate if anybody could provide some info or links that explain how this problem is handled or solved. More importantly, would appreciate a single example of an actual smart contract that responds to events that happen in the real world.
- blhack 6y ago
  This problem is solved by chainlink. Chainlink is also kindof the thing that allows all this wild DeFi stuff to happen. https://dyor-crypto.fandom.com/wiki/Chainlink_(LINK) https://dyor-crypto.fandom.com/wiki/Chainlink_(LINK)
  - nexthash 6y ago
    > External data for contracts. > Launched by the San Francisco fintech company SmartContract in June 2017. Currently based in the Cayman Islands. Yep, that's the silver bullet for crypto. A product run by a company located in a cozy jurisdiction with a sleek website & whitepapers.
- meowkit 6y ago
  Federated oracles is the answer you are seeking. Essentially build systems to quantify reputation and provide rewards for those that publish data of interest in a manner that can be driven via consensus or through interfacing with an agreed upon central authority prior to a contract. You don’t “trust” the oracles you make them compete and avoid malicious actions. You are focused on off-chain interactions for smart contracts. The infrastructure is not there yet I’m afraid, but there is steady progress. I believe Taiwan is working on IoT infastructure for publishing high resolution air quality data by having individuals set up sensing nodes that gather the data and publish it. Not sure if there is any DLT involvement, but no reason there couldn’t be. On chain contracts have lots of use cases in the meantime.
elavenile 6y ago
Love it, but i still prefer old traditional method. https://geekever.com/google-sheets-budget-templates-for-everyday-use/ https://geekever.com/google-sheets-budget-templates-for-ever...
nexthash 6y ago
It seems that for years now whenever people try to justify the usefulness of blockchain, cryptocurrencies, and smart contracts there are always 10 different, jargonic, and barely-understandable answers. There is no shortage of excuses given for why they haven't busted banks, credit cards, and payment apps. For years decentralized technologies have been pushed as the future for the internet and yet they still aren't used by anybody outside hardcore enthusiast communities, while bringing ruin to many others as volatile 'investments'. Goes to show that the problem is in the technology itself, no matter how you present it. Unless it is changed to reflect people's actual needs (i.e: reject the ideology of decentralization for convenience and easy payments) it will never gain traction.
- ssss11 6y ago
  With large financial institutions putting billions into it in 2020 and its continuation in 2021, I think the window for catastrophic failure has gone. Regardless of whether it’s useful or valuable i think it’s here to stay.
- iSnow 6y ago
  The web roughly took from 1995 to 2005 to take off. DLT and DeFi manage value, not just data or customer interactions, the cost of every error can be devastating. Yet, DeFi already has a couple of billions under management which isn't too bad. I do agree that the fixation on decentralization over everything isn't going to cut it, DLT will be backend tech used to secure hybrid applications. I don't see anyone paying in bitcoin or having an ETH wallet for daily purposes.
- birracerveza 6y ago
  No, it goes to show that you're unwilling to understand new technologies. Your view is jaded, the ecosystem has evolved a lot since 2017 and is starting to see real usage, DeFi being the first of many real world applications to come.
vmception 6y ago
CURRENT GAS PRICES: 1 MATIC GWEI on the MATIC PoS Ethereum sidechain! Rapidly growing liquidity on Quickswap, MATIC PoS Universe 1 has Gas Limits of 30,000,000 GWEI. Restart your higher frequency strategies there! 15 BNB GWEI on the Binance Smart Chain EVM! Rapidly growing liquidity on PancakeSwap and Julswap These gas prices are equivalent to cents, compared to the hundreds of dollars in gas needed on Ethereum mainnet The newer AMMs have land grabs for farmers!
dharma1 6y ago
This is a really clearly written overview of DeFi, well worth reading over morning coffee no matter if you are new to the space or a veteran. Shameless plug: I work on the design of one of the protocols mentioned in the paper - https://enzyme.finance https://enzyme.finance / https://twitter.com/enzymefinance https://twitter.com/enzymefinance - it makes running on-chain funds and strategies very easy. You can create an investment track record, manage outside capital in a trustless and transparent way, create your own active or custom index funds in 2 mins. We are looking for a frontend dev, and a smart contract dev - DM on Twitter if interested
applepple 6y ago
If anyone is interested in a DEX ecosystem which can scale for real (unlike the ones presented in this article) check out https://ldex.trading/ https://ldex.trading/ - It's still early so only 1 market for now. It scales by allowing each market to have separate infrastructure and it executes trades chain-to-chain. It's a natural way to shard the ecosystem based on markets. The degree of decentralization can vary based on the market.
RandomLensman 6y ago
I like the idea of making things more "seamless", but what troubles me is how cavalier people are willing to disregard existing knowledge about how to make working markets. For example, CLOBs are not a bad thing and re-inventing price discovery mechanisms is a dangerous thing (I am aware of all the issues in real world markets, but still). Some of these things have many 100s of years of evolutionary refinement in them. As another example, atomic settlement is also not a cure all, as it might up the liquidity requirements (i.e. have cash ready before entering into transactions, which is not how the current world works and it is not clear that this would be better world). The other overlooked item is role of real world law and legal actions, so there is an inherent mechanism to legislate when trust breaks down and that will supersede whatever a smart contract might say. Some points on transparency are also somewhat outdated, regulators now collect vast amounts of data to understand what happened on certain events, where exposures are, how market structure changes and so forth.
eamesyi 6y ago
The blockchain that wins will become a global and immutable log for all commercial events. Smart contracts and tokens are but building blocks in a fully on-chain financial system. https://tokenized.com/docs/intro/preface https://tokenized.com/docs/intro/preface

146 points by avyfain 6y ago

Where this is going to get really wild: tokenized securities backing the blockchain equivalent of an ETF. Imagine you program a smart contract which is the frontend of a algorithmic trading system. That future is coming.

Proven 6y ago
??? That changes nothing.
throwaway1777 6y ago
That already exists in the form of yield farming.
- blhack 6y ago
  Not as a frontend for traditional financial instruments as far as I know. Yield farming just trades other crypto asset, doesn't it?
  - robkop 6y ago
    Depends, there's some more complex formats defi systems out there now. Synthetix for example allows you to buy SNX tokens and then yeild farm on these against a B-Book which is filled with synth tokens (the synth tokens are derivatives of real assets e.g. sUSD, sAUD, sXAU, sFTSE) so you can trade against real financial instruments. You can take a look at their litepaper [1] if you want to know more. [1]: https://docs.synthetix.io/litepaper https://docs.synthetix.io/litepaper
2bluesc 6y ago
Kind of close with TokenSets[0] managing Mirror[1] backed assets. Things like the DeFi Pulse Index[2][3] I believe are automatically re-balanced by evaluating the weights on the third week of the month and then applied the first business day of the following month. I'm not sure if a human is involved? [0] https://www.tokensets.com/portfolio/dpi https://www.tokensets.com/portfolio/dpi [1] https://mirror.finance/ https://mirror.finance/ [2] https://www.tokensets.com/portfolio/dpi https://www.tokensets.com/portfolio/dpi [3] https://www.pulse.inc/ https://www.pulse.inc/
elliotec 6y ago
How close is Tzero to what you're talking about? https://www.tzero.com/ https://www.tzero.com/
slickrick216 6y ago
Check out keeperdao and keepers. They sort of do what you are describing.
paulryanrogers 6y ago
Common advice is to only invest in what you understand. If these markets are so obscenely complex only insiders can understand them then doesn't that limit their potential?
- suikadayo 6y ago
  It'll eventually be abstracted to where it's simple to be used by regular folks, or it'll be integrated into existing infrastructure.
  - hanniabu 6y ago
    Yup, I don't understand how a lot of traditional financial instruments work but I still use them. At least these are transparent.
    - xur17 6y ago
      That's one thing that I've really enjoyed so far - a lot of these projects are essentially lego bricks, and I can (and do) try and understand how all of the different pieces fit together. That's something that certainly isn't possible with a lot of traditional finance. Even if I wanted to figure it out, I don't have access to see everything.
      - suikadayo 6y ago
        Speaking of lego bricks, and I haven't used it yet myself, but https://furucombo.app/ https://furucombo.app/ looks really interesting!
        xur17 6y ago
        I've played around with it a bit. I actually found a juicy arbitrage opportunity, and was trying to use it to chain a few trades together to take advantage. Unfortunately it didn't support one of the trading platforms I needed to use, so I ended up just manually making the transactions separately. This really drove home how inefficient and full of opportunities Ethereum is if you know where to look.
rawtxapp 6y ago
In many ways, the future is here, there are billions of dollars locked in these defi projects, I'd say now it's more about adoption and user education.
- xur17 6y ago
  And scaling. Transaction fees have gotten insane lately, scaling solutions cannot come soon enough.
  - rawtxapp 6y ago
    100% agree, right now it's like 80$ for a uniswap exchange, 200$ to open a maker vault, 100$ to transfer tokens, etc. I'm really looking forward to eth2 which will hopefully land without too much issues or delays.
    - zaarn 6y ago
      It's not as bad if you're willing to wait a bit. Token transfers are like 10$ if you set the gas price to around 120 Gwei, should validate within an hour or two. The tricky bit is the exchanges, though in my experience, the worst was around 60$ fee for a swap at a busy time.
  - dpraburaj 6y ago
    Fees on other chains like Binance Smart Chain(EVM compatible), Terra and others are quite low now(around 0.2 - 1 USD per transaction). PancakeSwap is a Uniswap alternative on BSC and TerraSwap is a Uni alternative on the Terra blockchain.
    - xur17 6y ago
      The issue is that all of the platforms people want to interact with right now tend to be on Ethereum (which is part of the reason it is so expensive).
nugget 6y ago
I'm advising a team that is working on this problem right now; it will be a crowded field, but there are multiple distinct approaches. I'd describe the challenge as equal parts technical, legal/regulatory, and marketing/comms. If anyone is interested in potentially working on this or learning more, send me an email.
timdaub 6y ago
I'm attempting to build a data set ETF: https://rugpullindex.com https://rugpullindex.com
tcgv 6y ago
DeFi is a very innovative field indeed. What I find most appealing is that some popular derivative protocols are yet inefficient in some ways, which means there is a lot of room for new solutions to come along. For instance, I'm interested in options trading, and there is a lot of competing protocols [1] each one with it's advantages and disadvantages. One of the most popular, Hegic [2], employs liquidity pools pricing options at a really expensive value due to a simplified pricing model (good for writers). Shameless plug: I myself have been playing with smart contracts in my free time and deployed a tokenizable options trading decentralized exchange [3] (on kovan testnet nonetheless!) trying to address some os these points. Learned a lot implmementing it, and I find amazing that anyone can come up with their own DeFi solution. [1] https://medium.com/coinmonks/an-update-of-a-comparison-of-decentralized-options-platforms-91b14d3a6170 https://medium.com/coinmonks/an-update-of-a-comparison-of-de... [2] https://www.hegic.co/ https://www.hegic.co/ [3] https://github.com/TCGV/DeFiOptions https://github.com/TCGV/DeFiOptions

deleted 6y ago

[deleted]

seibelj 6y ago

This is a great summary, and HNers who knee-jerk hate crypto and say it's worthless should especially give it a read. It's becoming clearer that more and more finance is going to move to blockchain rails. IMO this is the future, and yes I have put my money where my mouth is on that opinion.

deleted 6y ago
[deleted]
udfalkso 6y ago
How does one best bet on the future of DeFi?
- slickrick216 6y ago
  Tricky problem. I’d probably buy some ETH/FTM/DOT to cover speculation on the infra side. Then get some YFI/AAVE/SNX/ROOK to cover the app speculation although there’s hundreds here to choose from. The approach I’m taking is a blockchain agnostic one. There’s lots of middleware projects with tokens such as GRT, REN and LINK. I see middleware growing really as it has utility in defi but also other applications.
- 3001 6y ago
  buy etherum
- hanniabu 6y ago
  Ethereum (ETH) and DeFi Pulse Index (DPI). Everything is built on Ethereum so the value of the network will be reflected in ETH. There are a few groups working in how to calculate the total value on chain as well as how this value should be related to and reflected in the price. DPI is a basket of DeFi tokens so you'll receive exposure to the big players through asset. You can think of this like an ETF.
- deleted 6y ago
  [deleted]
- rawtxapp 6y ago

bromquinn 6y ago

This seems to be a great ‘intro to defi’ read. Can someone with knowledge of defi point out any deficiencies or inaccuracies here? Are there better ‘intro to defi’ papers that newcomers should read?

xvilka 6y ago

Cardano (ADA) looks more promising for the DeFi applications. It's better designed and written in a safer, purer language (Haskell).

suikadayo 6y ago
Cardano doesn't have smart contracts yet, and with Metcalfe's Law and network effects, Ethereum is already leading with DeFi.
- xvilka 6y ago
  They are almost there with Plutus[1][2] and Marlowe[3]. [1] https://docs.cardano.org/projects/plutus/en/latest/ https://docs.cardano.org/projects/plutus/en/latest/ [2] https://github.com/input-output-hk/plutus https://github.com/input-output-hk/plutus [3] https://docs.cardano.org/en/latest/marlowe/marlowe-explainer.html https://docs.cardano.org/en/latest/marlowe/marlowe-explainer...
arberx 6y ago
"It's better designed" - that's a very subjective comment. There are already a bunch of other chains that do what ADA seeks to do like Tezos, Polkadot, and Solana. Why haven't those gained traction? Also, while it does make dapps safer, the lack of functional programming experience in most programmers makes it diffcult for me to think Cardano will do any better.
- xvilka 6y ago
  Polkadot certainly gained traction recently - together with Cardano they occupy 3 and 4 places on market capitalization if you exclude Tether[1]. [1] https://coinmarketcap.com/ https://coinmarketcap.com/
  - hanniabu 6y ago
    Market cap is not adoption. Look at how many projects that were in the top 20 in 2017 that aren't the anymore. LSK, Neo, EOS, NEM, OMG, DASH, BTG....goes on and on

vishakh82 6y ago

Shameless self-plug on how DeFi can be done more robustly using functional programming constructs: https://vishakh.medium.com/bringing-true-composability-and-robustness-to-decentralized-finance-bbd6945ca03a https://vishakh.medium.com/bringing-true-composability-and-r....

arberx 6y ago
I don't think anyone disagrees with this. The reason functional languages aren't used to write smart contracts is the same reason functional languages aren't used to write a majority of software projects...adoptability/lack of knowledge/interest.

arberx 6y ago

Some of the protocols/dapps mentioned in the article that are great entry points into DeFi: - https://uniswap.org/ https://uniswap.org/ - https://aave.com/ https://aave.com/ - https://makerdao.com/ https://makerdao.com/ - https://yearn.finance/ https://yearn.finance/

rawtxapp 6y ago
MakerDAO (aka oasis, dai system) is one of the coolest software project I've ever used, highly recommend anyone checking it out. It's essentially a system of smart contracts and surrounding system which create a stablecoin pegged to the dollar (1DAI=1$) backed by crypto collateral. One of the benefits of that is, you can access your crypto and use it without selling your position, which means you're not paying any capital gains taxes. There's a 4% stability fee with borrowing against your collateral (notice it's not an interest, it's a fee, which means many people who can't deal or don't want to pay/receive interest can actually use it). 4% is a drop in the bucket when you consider gains on your assets and a lack of capital gains tax. p.s. I'm a long term BTC believer who always thought most of these projects were scam until I've actually started researching and trying to understand it.
- hanniabu 6y ago
  > always thought most of these projects were scam until I've actually started researching and trying to understand it. Unfortunately these seems to be the case for most people. What have you this notion that it's all a scam? What it news pundits? Twitter/Reddit threads?
  - rawtxapp 6y ago
    I've been in crypto since 2014 and was here for 2017 when all ICOs that did absolutely nothing were being pumped and dumped, so I wrote off ether for a few years until defi kept creeping up in my news couple times. I think there's still lots of scams out there, but the big projects like Maker, uniswap, compound, etc, have made me change my mind.

TameAntelope 6y ago

If I wanted to know everything about how these systems worked, where would I begin? Is there anything comprehensive that'd take a while to digest?

seibelj 6y ago
I have considered writing a book about this stuff but it's an insanely bad use of my time vs. building tech in this space from a profit perspective. Defi is the highest possible way that a software engineer can earn money in 2021 without being some high-up FAANG architect or hit the startup lotto. Small teams are making millions or tens of millions of dollars, and they are making actual value (not ICO scams like in 2017!) with billions of dollars flowing through it. If you want to break into this space, start with the bitcoin white paper, read this book[0], then do the Ethereum white / yellow papers, start messing around with smart contracts, then consume every possible piece of knowledge you can, because it's all spread out everywhere without good central repositories of knowledge. Defi is protocolized finance. It's making building blocks of financial tools that people and projects fit together in new ways to accomplish various things (earn interest, hedge, go leveraged long, buy insurance, etc. etc. etc.). The possibilities are truly endless and the space is open for innovation like never before as there are no rules and regulations, and there never will be any! Good luck! [0] https://www.amazon.com/Mastering-Bitcoin-Programming-Open-Blockchain/dp/1491954388/ https://www.amazon.com/Mastering-Bitcoin-Programming-Open-Bl...
- lbotos 6y ago
  > there are no rules and regulations, and there never will be any! Good luck! https://en.wikipedia.org/wiki/Virtual_currency_law_in_the_United_States https://en.wikipedia.org/wiki/Virtual_currency_law_in_the_Un... https://www.wired.com/story/janet-yellen-consider-limiting-cryptocurrency/ https://www.wired.com/story/janet-yellen-consider-limiting-c... --- Governments around the world, at any time, could outlaw bitcoin or cryptocurrency. At the moment, it's accepted, but the minute it's seen as 'uncontrollable' expect that regulations will be attempted.
  - 6y ago

hn_throwaway_99 6y ago

Apologies if this is a bit of an ELI5 request, but after many years I still don't understand the real-world uses of smart contracts. There was this post on HN a couple years ago, https://news.ycombinator.com/item?id=19225857 https://news.ycombinator.com/item?id=19225857, and I still don't understand how any of those issues are addressed. Specifically what I'm struggling to understand is that most (all?) real-world contracts require some information about the real world: The price of corn (or corn futures), whether the rental apartment was as described, whether the sneakers were authentic, etc. But whenever you need this real world information, at some point you need an oracle, or a consensus of oracles, and at that point I don't really see the point of using blockchain as you have to trust the oracles. Would really appreciate if anybody could provide some info or links that explain how this problem is handled or solved. More importantly, would appreciate a single example of an actual smart contract that responds to events that happen in the real world.

blhack 6y ago
This problem is solved by chainlink. Chainlink is also kindof the thing that allows all this wild DeFi stuff to happen. https://dyor-crypto.fandom.com/wiki/Chainlink_(LINK) https://dyor-crypto.fandom.com/wiki/Chainlink_(LINK)
- nexthash 6y ago
  > External data for contracts. > Launched by the San Francisco fintech company SmartContract in June 2017. Currently based in the Cayman Islands. Yep, that's the silver bullet for crypto. A product run by a company located in a cozy jurisdiction with a sleek website & whitepapers.
meowkit 6y ago
Federated oracles is the answer you are seeking. Essentially build systems to quantify reputation and provide rewards for those that publish data of interest in a manner that can be driven via consensus or through interfacing with an agreed upon central authority prior to a contract. You don’t “trust” the oracles you make them compete and avoid malicious actions. You are focused on off-chain interactions for smart contracts. The infrastructure is not there yet I’m afraid, but there is steady progress. I believe Taiwan is working on IoT infastructure for publishing high resolution air quality data by having individuals set up sensing nodes that gather the data and publish it. Not sure if there is any DLT involvement, but no reason there couldn’t be. On chain contracts have lots of use cases in the meantime.

elavenile 6y ago

Love it, but i still prefer old traditional method. https://geekever.com/google-sheets-budget-templates-for-everyday-use/ https://geekever.com/google-sheets-budget-templates-for-ever...

nexthash 6y ago

It seems that for years now whenever people try to justify the usefulness of blockchain, cryptocurrencies, and smart contracts there are always 10 different, jargonic, and barely-understandable answers. There is no shortage of excuses given for why they haven't busted banks, credit cards, and payment apps. For years decentralized technologies have been pushed as the future for the internet and yet they still aren't used by anybody outside hardcore enthusiast communities, while bringing ruin to many others as volatile 'investments'. Goes to show that the problem is in the technology itself, no matter how you present it. Unless it is changed to reflect people's actual needs (i.e: reject the ideology of decentralization for convenience and easy payments) it will never gain traction.

ssss11 6y ago
With large financial institutions putting billions into it in 2020 and its continuation in 2021, I think the window for catastrophic failure has gone. Regardless of whether it’s useful or valuable i think it’s here to stay.
iSnow 6y ago
The web roughly took from 1995 to 2005 to take off. DLT and DeFi manage value, not just data or customer interactions, the cost of every error can be devastating. Yet, DeFi already has a couple of billions under management which isn't too bad. I do agree that the fixation on decentralization over everything isn't going to cut it, DLT will be backend tech used to secure hybrid applications. I don't see anyone paying in bitcoin or having an ETH wallet for daily purposes.
birracerveza 6y ago
No, it goes to show that you're unwilling to understand new technologies. Your view is jaded, the ecosystem has evolved a lot since 2017 and is starting to see real usage, DeFi being the first of many real world applications to come.

vmception 6y ago

CURRENT GAS PRICES: 1 MATIC GWEI on the MATIC PoS Ethereum sidechain! Rapidly growing liquidity on Quickswap, MATIC PoS Universe 1 has Gas Limits of 30,000,000 GWEI. Restart your higher frequency strategies there! 15 BNB GWEI on the Binance Smart Chain EVM! Rapidly growing liquidity on PancakeSwap and Julswap These gas prices are equivalent to cents, compared to the hundreds of dollars in gas needed on Ethereum mainnet The newer AMMs have land grabs for farmers!

dharma1 6y ago

This is a really clearly written overview of DeFi, well worth reading over morning coffee no matter if you are new to the space or a veteran. Shameless plug: I work on the design of one of the protocols mentioned in the paper - https://enzyme.finance https://enzyme.finance / https://twitter.com/enzymefinance https://twitter.com/enzymefinance - it makes running on-chain funds and strategies very easy. You can create an investment track record, manage outside capital in a trustless and transparent way, create your own active or custom index funds in 2 mins. We are looking for a frontend dev, and a smart contract dev - DM on Twitter if interested

applepple 6y ago

If anyone is interested in a DEX ecosystem which can scale for real (unlike the ones presented in this article) check out https://ldex.trading/ https://ldex.trading/ - It's still early so only 1 market for now. It scales by allowing each market to have separate infrastructure and it executes trades chain-to-chain. It's a natural way to shard the ecosystem based on markets. The degree of decentralization can vary based on the market.

RandomLensman 6y ago

I like the idea of making things more "seamless", but what troubles me is how cavalier people are willing to disregard existing knowledge about how to make working markets. For example, CLOBs are not a bad thing and re-inventing price discovery mechanisms is a dangerous thing (I am aware of all the issues in real world markets, but still). Some of these things have many 100s of years of evolutionary refinement in them. As another example, atomic settlement is also not a cure all, as it might up the liquidity requirements (i.e. have cash ready before entering into transactions, which is not how the current world works and it is not clear that this would be better world). The other overlooked item is role of real world law and legal actions, so there is an inherent mechanism to legislate when trust breaks down and that will supersede whatever a smart contract might say. Some points on transparency are also somewhat outdated, regulators now collect vast amounts of data to understand what happened on certain events, where exposures are, how market structure changes and so forth.

eamesyi 6y ago

The blockchain that wins will become a global and immutable log for all commercial events. Smart contracts and tokens are but building blocks in a fully on-chain financial system. https://tokenized.com/docs/intro/preface https://tokenized.com/docs/intro/preface