Interest in cryptocurrencies seems to come in waves. A lot has happened in the last decade and many brave and often naive promises were made, creating both excitement and more often than not disappointments.
Despite all the hype, in the background many gears have been steadily moving, creating new building blocks to the internet finance layer that is called decentralised finance or in short DeFi. DeFi generally refers to the digital assets and financial smart contracts, protocols, and decentralized applications (DApps) built on a blockchain. In simpler terms, it’s the financial software that can be pieced together like Money Legos.
The movement encompasses “decentralised” exchanges and lending platforms. Here there is no reliance on a central intermediary to hold funds — instead, trades and loans occur directly between participants through automated processes. The majority of DeFi products work well together when compared to the current financial infrastructure that has been built up over decades and leaves 2.5 billion without access to Financial Services. There are however risks in this young and largely untested environment.Failures on the part of programmers can lead to hackers stealing money locked in smart contracts- a type of special decentralised program that sits on top of a public ledger. Abnormal market conditions can potentially crash products, while some larger holders can potentially manipulate market prices to their advantage and if you lose your codes or passphrases there’s no deposit insurance to recover lost funds.
However the biggest hurdle facing DeFi is its ability to scale. Although usage has grown considerably in recent years (it’s estimated that there are about 50,000 people participatingin DeFi at the moment), in the grand picture, the numbers are minuscule compared to traditional finance. DeFi is still confined to a very small elite of technologists and retail investors whileconstantly at the mercy of the network congestion that can stop entire DeFi smart contracts from working properly. Most recently this problem caused users of the popular DeFi application, MakerDAO, to lose over $4m in collateral because the congestion stopped a critical market function from working properly.
This congestion is being caused by the way in which mainstream blockchains process transactions and smart contracts, where every node has to process every event, in the same order. This is both costly and ineffective. Put simply there’s no way DeFi can fulfil its potential and provide access to financial services for the world’s unbanked using the current Distributed Ledger Technology (DLT) platforms on offer.
Radix DLT has,from its humble origins in Stoke-on-Trent seven years ago,completed a mathematically tested blueprint of how to build a scalable, decentralised, public network that can support and connect billions of users. Unlike traditional public ledgers (Bitcoin/Ethereum/Algorand etc), which treat consensus operations like a single lane of traffic, Cerberus creates a multi-lane superhighway, capable of processing massive numbers of transactions in parallel. Through the Cerberus consensus protocol, the Radix whitepaper answers one of the most pressing issues facing the blockchain industry, that of scalability.
This is achieved through sharding, the technique commonly used to break up huge databases into smaller, more manageable chunks. Cerberus uses a pre-sharded data structure so large that it could store the entirety of Google’s data in 0.5byte chunks. This fixed, pre-sharded data structure allows Cerberus to deterministically map all transactions/tokens/smart contracts into groups. This groups together related operations and ungroups unrelated operations across 18.4 quintillion shards. The result is virtually unbound parallel throughput and the ability to complete 1m transactions per second (TPS). Unlike other blockchains that need multiple confirmations before something can be considered trustworthy, Cerberus reaches finality within five seconds, creating an immutable record almost instantly after the transaction has been submitted.
DeFi has the potential to deliver financial inclusion to billions of people over the next decade and unleash economic growth and opportunities for people who currently lack the infrastructure to access markets. The biggestnear termimpact will be the ability to bring new assets to the network creating new opportunities and reasons for new customers to join the party. As the technology matures, standardised and with better tooling, more companies and programmers will jump onto the DeFi train.As things stand blockchains offer a vision as to how centralised counterparties can be removed from the equation however they suffer practical limitations that impede potential uptake. Radix has laid out the blueprint to ensure anyone, irrespective of their location or resources can have friction-free access to the digital economy and unleash this technology’s true potential.