The second half of DeFi: A panoramic view of the Polkadot DeFi ecosystem in one article

Written by: Ade

Polkadot , regarded as the cross-chain leader, is one of the few market focuses that can still take away some attention from Ethereum after the popularity of DeFi. In the second half of 2020, in another corner where Ethereum DeFi is developing in full swing, the construction of Polkadot DeFi 's ecosystem is also proceeding in full swing.

According to PolkaProject statistics, the number of Polkadot ecosystem applications has reached 310 , covering areas including underlying technology, wallets, oracles, NFT, DAO, smart contracts, bridges, DeFi, IoT and games. Among them, 97 projects are based on Substrate, accounting for 31.29%. How many DeFi projects are there? How is their current development? What categories do they belong to? What changes have they caused to Polkadot's ecology? This article will take readers to a glance at the current status of Polkadot's DeFi ecology.

Substrate’s modularity and flexibility

Highly consistent with DeFi infrastructure requirements

Substrate is a blockchain building framework that makes it easy to create custom blockchains optimized for unique scenarios . Substrate is fully modular and flexible : mix and match ready-made components and build core business logic, while leaving the rest to the framework. Plug-and-play modules like consensus networks and finality give developers the freedom to focus on specific areas of expertise, saving a lot of time and effort in the development process. Stay lean by implementing only the necessary features on your custom blockchain.

With Substrate's forkless upgrades and transparent governance tools, new features can be added over time without worrying about network forks, enjoying easier and risk-free upgrades. In addition, Substrate also provides native support for direct connection to Polkadot, and the Substrate tool Cumulus will also unlock inter-chain communication, collaboration, and shared security.

Currently, Substrate has been updated to version 2.0 . The blockchain framework now includes off-chain workers and more than 70 composable modules, laying a solid foundation for building optimized, Polkadot-compatible, production-ready blockchains.

Benefiting from the development of the Polkadot network, the number of its developers increased sharply in 2020. The " Blockchain Developer Report " (https://www.chainnews.com/articles/123788669577.htm) recently released by crypto venture capital firm Electric Capital shows that compared with 189 developers in the third quarter of 2019, as of the third quarter of 2020, the number of Polkadot developers reached 384, a year-on-year increase of 103% .

Among them, the number of developers of Acala , the decentralized financial center and stablecoin platform of Polkadot ecosystem, has increased by 200%. Currently, Acala has launched a series of DeFi financial products : such as the decentralized over-collateralized lending stablecoin system, Staking derivatives, decentralized exchanges and other Layer 1 core modules.

Polkadot has established a cross-chain underlying architecture that allows all different types of blockchains connected to this architecture to work together. This means that only when there are enough ecological projects that can interact well within this decentralized system can the system's true potential be realized.

Analyzing the current status of Polkadot DeFi ecosystem from five dimensions

ChainNews classifies and summarizes Polkadot's current DeFi projects into five categories : cross-chain (bridge) , oracle, application, DEX and wallet, and analyzes its ecology.

Cross-chain/bridge

Polkadot uses Cross-Chain Message Passing ( XCMP) for asynchronous communication between parachains. With XCMP, you can send messages that do not require a response (but guarantee that the receiving chain will act on it) , and you can also communicate that requires certain specific information to be returned (such as the return value of a function called on the receiving chain) .

Simply put, XCMP plays the role of a " bridge " in the Polkadot system, similar to the TCP/IP protocol commonly used on the Internet. It enables messages to be transmitted between Polkadot's various parallel chains and supports interaction between components on these parallel chains.

The bridge provides blockchains outside the Polkadot system with the possibility of cross-chain interaction with the Polkadot ecosystem. Most projects in the Polkadot ecosystem are based on the Substrate framework , which has greater flexibility in customizing blockchain network components. Through native cross-chain support, Polkadot's DeFi ecosystem can smoothly build various applications, and even has greater flexibility than Ethereum.

In this category, the main representative projects are PolkaBTC , the first Bitcoin-pegged coin in the Polkadot ecosystem, cross-chain asset projects represented by ChainX , and Darwinia , a bridge project positioned on Polkadot.

PolkaBTC is the first trustless Bitcoin-pegged coin launched by the DeFi interoperability platform Interlay, allowing users to mint Bitcoin-backed assets PolkaBTC 1:1 on the Polkadot blockchain and is widely used in Polkadot's DeFi.

The PolkaBTC Alpha testnet was launched on December 9, which allows users to mint and redeem the first PolkaBTC and connect to the BTC Parachain testnet. According to the roadmap previously released by Interlay, the BTC Parachain is expected to be launched in February or March 2021.

The ChainX mainnet was officially launched on May 25. It mainly adopts the ecological technology system of the cross-chain project Polkadot, and uniformly transforms inter-chain assets in a decentralized manner. The goal is to break the barriers between inter-chain assets and realize a public chain ecosystem with multi-currency integration.

Currently, ChainX has successfully updated the mainnet to Substrate 2.0. This version will adopt Polkadot's new hybrid consensus mechanism and enable on-chain governance. ChainX 2.0 independent chain will evolve from three directions: Kusama parachain, Polkadot parachain, and Polkadot secondary relay chain.

Darwinia is a cross-chain bridge network developed based on Substrate, focusing on building the future asset interconnection network, including non-standard asset auction market, stablecoin cross-chain, asset trading and exchange, etc. Darwinia uses a sublinear super light client to realize the perception of the external chain status, replacing the current centralized or semi-decentralized cross-chain solutions.

At present, Darwinia's one-way cross-chain bridge for Ethereum has been officially opened, and the Darwinia mainnet has also been gradually launched. According to the official introduction, Darwinia will open the "Ethereum-Darwinia two-way cross-chain bridge/transfer" in the third phase, and the " multi-directional cross-chain " in the fourth phase.

Oracle

DeFi relies on the blockchain system for cryptocurrency transactions and lending, and oracles, as an important mechanism for obtaining data from the outside, are an indispensable part of maintaining the normal operation of DeFi. In the field of oracles, Chainlink is recognized as a leading project, and other common oracles include Tellor, Nest, and Band Protocol.

Currently, the oracle projects in the Polkadot ecosystem include Zeitgeist, ZK Oracle, PolkaOracle, Kylin Network, Clovyr and Noise Explorer.

Among them, the privacy oracle ZK Oracle will be designed and developed based on the SERO chain in the initial stage, and support the Turing-complete smart contract platform on SERO.

Before the various functions of the Polkadot mainnet are officially launched, ZK Oracle will maintain the original anonymity solution . Subsequently, ZK Oracle will migrate to the Substrate cross-chain underlying architecture to continuously improve the various functions of ZK Oracle.

It is worth noting that Polkadot officially announced that it will integrate Chainlink Oracle as the price feed source for all blockchains in the Polkadot ecosystem. Polkadot became the first non-Ethereum blockchain supported by Chainlink, and stated that the introduction of Chainlink Oracle into Substrate and the Polkadot ecosystem is an important milestone. Chainlink has officially become an "interface across various blockchain platforms."

In addition, Acala, Laminar and the decentralized oracle Band Protocol have cooperated to release the " Open Oracle Gateway ", whose specific features include support for multiple oracle networks, the ability to choose the price feed source you want, oracle price feeds provided in a Quality of Service (QoS) manner, and free of charge. This means that in addition to Acala operating its own oracles and providing price feed services, the oracle gateway solution allows multiple parties to join.

DEX

Zenlink and Acala's Homa protocol are currently the best-developed DEX projects in the Polkadot ecosystem.

So far, Zenlink, the cross-chain DEX protocol of the Polkadot ecosystem, has announced the completion of the first cross-chain communication prototype verification between parachains on Polkadot, and has successfully implemented the first real cross-chain transaction use case based on the asset management and DEX modules in the Zenlink DEX Module. This means that assets issued through the Zenlink module can be transferred across chains based on XCMP messages.

In addition, Polkadot's DEX PolkaSwap, a non-custodial AMM mechanism, will be launched in the near future. PolkaSwap is based on Hyperledger Iroha v2 and bridged to the Kusama and Polkadot networks, allowing users to trade digital assets based on Substrate.

As a DeFi application on SORA , SORA's liquidity mining will distribute 2% of Polkaswap platform currency PSWAP. In addition, according to official information, PolkaSwap has been migrated to Substrate 2.0, the external API is almost complete, and the design of its Ethereum bridge UI/UX is in progress.

Another DEX, Polkastarter , will be officially launched on December 15, and the first batch of projects to conduct token sales are already in preparation. Polkastarter is specially built for cross-chain token pools and auctions, allowing decentralized projects to raise and trade funds in a low-cost and fast manner, and provides cross-chain, priced block transactions and dynamic price auctions, etc., supporting digital assets other than the commonly used ERC-20.

wallet

According to Polkaproject data, there are currently 28 wallet projects in the Polkadot ecosystem, accounting for 9.03% of the total 310 applications, including Polkadot-JS Apps , Polkadot mobile wallet Polkawallet , hardware wallets Parity Signer and Ledger , and multi-chain digital asset wallets imToken and HyperPay Wallet .

application

DeFi's underlying products are the most closely connected to users, and are also part of the core of the complete DeFi ecosystem. From here, the DeFi financial Lego game officially begins.

In Ethereum DeFi, the underlying products include mortgage lending, trading, insurance, financial management, derivatives and other niche applications. Polkadot DeFi is not as extensive as Ethereum DeFi at present, but it also has a series of basic underlying products. Chain News summarizes it as follows:

Borrowing

Lending is the cornerstone of the DeFi financial system and the earliest mature business model in Ethereum DeFi. Currently, there are not many projects focusing on lending in the Polkadot ecosystem, and most of them have lending functions. This category includes: DeFi aggregation application platform Konomi, Acala's Honzon protocol that supports cross-chain multi-asset collateral, the original EOS-based DeFi project Equilibrium, and the lending protocol Akropolis.

Konomi is a public chain developed based on Substrate. The first and most important product based on Konomi is the decentralized lending application. With the release of Polkadot parachains and the effectiveness of the inter-chain communication protocol, Konomi can support more financial products for the Polkadot ecosystem. In terms of application scenarios, there are mainly two application scenarios: linkage between cross-parachain applications and the income of DOT ecological assets.

Acala is the first asset-collateralized stablecoin issuance platform built on the Substrate framework. Currently, Acala's financial system includes liquidation, oracle services, support for cross-chain multi-asset collateral, release of staking liquidity, DEX, synthetic assets, etc.

Equilibrium is the original DeFi protocol based on EOS. It announced in September this year that it had become a partner with Polkadot and would use Polkadot's Substrate technology to build Equilibrium's blockchain. At the same time, Equilibrium also received grant funds from the Web3 Foundation's second quarter grant plan.

Akropolis aims to create a distributed financial network protocol that provides people with financial savings and value-added tools that do not rely on geographical location, counterparties or intermediaries.

It is worth noting that Akropolis was hacked in November and 2 million DAI was stolen by hackers. In the same month, it reached a cooperation with yearn.finance. The specific content includes: Yearn and Akropolis merge development resources and increase TVL (locked volume) at the same time; Akropolis can access Yearn, Pickle and Cream protocols; Yearn can access new investment strategies and business development experts developed by Akropolis.

Financial Management

Star projects of financial management applications include Bifrost and Stafi that provide liquidity for Staking , Reef Finance for aggregator asset management products, and Definex, a financial market protocol.

Bifrost Rainbow Bridge is committed to becoming an infrastructure that provides liquidity for pledged assets. It currently launches vToken , a derivative product for Staking and Polkadot's parachain slot PLO. vToken can optimize transactions in multiple scenarios such as DeFi, DApp, DEX, CEX, etc., and realize the transfer channel of pledged rights such as Staking and PLO through vToken, and achieve risk hedging of pledged assets. When vToken is used as collateral for lending, its Staking income can offset part of the interest and achieve low-interest lending.

The Stafi protocol resolves the contradiction between the security required by the system and the liquidity of its tokens by distributing ABS tokens to Staking participants. ABS tokens are the certificates corresponding to the user's Staking assets. When staking, users will also obtain corresponding ABS tokens to facilitate circulation and transactions.

Reef Finance is the first cross-chain DeFi operating system built on Polkadot. It aims to provide users with a smart liquidity aggregator and yield engine through a seamless user interface, allowing traders to obtain liquidity from CEX and DEX for trading.

Definex is a financial market protocol built on Substrate, designed to power open, highly liquid and interconnected decentralized financial applications. Definex establishes a multi-collateral storage and lending platform through on-chain clearing and custody, and attempts to build the next generation of cross-chain multi-asset DeFi protocols , providing smart contracts for different crypto assets to interoperate within the Definex protocol.

Stablecoins

On Ethereum DeFi, ETH, various stablecoins, and tokens issued based on ERC-20, such as COMP, jointly build the layers of DeFi Lego, and participate in this financial game as collateral in countless protocols. In this category, the Polkadot ecosystem is mainly represented by decentralized stablecoins Acala and Bandot.

Acala mainly generates the stablecoin aUSD through over-collateralization, allowing users to send and receive US dollars across any blockchain connected to Polkadot. The Bandot protocol supports value interoperability between different parachains, allowing the value on the Polkadot chain to be traded and circulated quickly.

summary

In general, Polkadot currently has the basic elements for the development of the DeFi ecosystem. From the current development, Polkadot's shared security, heterogeneous cross-chain and non-fork upgrade features make it a highly scalable network, which is its advantage over Ethereum. On the other hand, the support given by the Web3 Foundation and Parity in the ecological construction of the project is relatively generous , which is conducive to the development of more teams and the construction of application scenarios in the future.

Currently, the auction of parachain slots has not started yet, and various projects are still in the process of exploring and developing. How to expand the core community and continue to innovate to complete the long-term collaborative construction of the ecosystem is the focus that project parties still need to think about in the future.