Can DeFi beat CeFi on high TPS chains?
From March 3rd to 5th, 2023, Pontem successfully hosted MoveCon, the first conference exclusively dedicated to the Move ecosystem. The event featured an exceptional lineup of speakers from Aptos, LayerZero, Mechanism Capital, OtterSec, and other leading industry players.
Kicking off the conference on March 3rd, industry leaders from Tortuga, Concordia, and Saison Capital sparked engaging conversations on the potential for DeFi to surpass CeFi on high TPS chains.
You can listen to the full recording on Twitter or YouTube.
Meet the Speakers:
- Uri Ferruccio: CEO and co-founder of Concordia, a cutting-edge modular risk and collateral management protocol soon to be launched on Aptos. Uri's credentials include working at Binance and founding the AI division of JD.com.
- Nicolas: An experienced DeFi expert from Tortuga, a liquid staking protocol on Aptos. Nic has a proven track record of running validators on different chains and previously contributed to the development of products across various areas, including the DoorDash ads platform.
- Sharvin Baindur: Chief of Staff at Saison Capital, the investment arm of one of the world's largest credit card companies and wholesale lenders in Japan, Southeast Asia, and India – Credit Saison. As a core contributor for one of the biggest on-chain clubs, Sharvin brings a wealth of experience to the discussion, having also worked on a multi-asset strategy for a third-generation family office.
- MacBrennan Peet: A founding member of MRGN Research – a conglomerate building on Solana. Mac's extensive experience in managing hedge funds and several other finance and tech companies adds to the depth and diversity of the panel's expertise.
The Battle for Financial Supremacy: Can DeFi Beat CeFi on High TPS Chains?
The financial industry has experienced a remarkable evolution in recent times, catalyzed by the growth of DeFi and the intensifying competition with CeFi.
DeFi presents a fundamentally different approach to finance than CeFi. DeFi is a decentralized financial system that operates on logically identical nodes, as opposed to CeFi, which relies on a centralized system of servers. DeFi is distributed across an interconnected network of nodes, making it less vulnerable to systemic failures and more resilient than CeFi.
Defining DeFi and CeFi, however, is only the beginning. To comprehend what it means for DeFi to "beat" CeFi, we need to set our objectives for the financial system as a whole.
Many factors can influence whether DeFi can beat CeFi on high TPS chains. These factors include the efficiency of the network infrastructure, the underlying blockchain technology, the scalability solutions implemented, and the adoption of the technology by users.
According to Nic, the objective of DeFi should be to enhance people's financial lives by creating platforms that are more secure, accessible, and efficient than those offered by CeFi.
To attain this objective, DeFi must either demonstrate itself as a viable alternative to CeFi by attracting users away from traditional finance or compel CeFi to enhance its services in response to competition.
DeFi has several inherent advantages over CeFi, including greater resilience, transparency, and lower costs. By leveraging these strengths, DeFi can present users with an irresistible value proposition that may prove challenging for CeFi to match.
However, it is not only about DeFi's advantages; it is also about the challenges that CeFi encounters. The traditional financial system is built on a complicated web of interconnected systems, making it vulnerable to systemic risks and challenging to upgrade or change.
Moreover, the legacy systems and technologies used by CeFi make it more expensive and less efficient than DeFi, which can utilize cutting-edge blockchain technologies to reduce costs and improve efficiency.
Despite these challenges, it is clear that CeFi will remain relevant for the foreseeable future. The traditional financial system still commands significant influence over the global economy, and any change in one subsystem can have unpredictable consequences.
Hence, the transition to a fully decentralized financial system will likely take several years, if not decades.
Exploring the Pros and Cons of DeFi and CeFi: Which One Will Prevail in the Future of Finance?
DeFi has garnered significant attention for its potential to revolutionize the financial industry. Despite this, CeFi still dominates the market due to its established user experience, stability, and regulatory compliance, which are vital in creating real value for users.
While DeFi's transparency, auditability, and extensibility are clear advantages, it faces several challenges that it needs to overcome to surpass CeFi's dominance.
However, Sharvin suggested that DeFi is already making strides in certain areas, evidenced by trading volumes on platforms like Uniswap surpassing those of established exchanges such as Coinbase after the FTX crash. This growing faith in DeFi is a clear indication of its potential, but it still has a long way to go in terms of adoption and regulation.
Unlike CeFi, which is heavily regulated, DeFi is largely unregulated, making it difficult for traditional financial institutions to participate in the space. Furthermore, DeFi needs to address stablecoin supply, user experience, and liquidity fragmentation problems to increase its competitiveness with centralized options.
Nonetheless, the beauty of DeFi lies in its ability to build in parallel to the traditional financial system, providing a unique opportunity to create solutions that have never existed before. To realize its potential, it is crucial to approach DeFi from different angles, taking into account real-world applications and creating a user experience that can rival centralized options.
Beyond High-Throughput: The Unique Benefits of the Move Language for Financial Products
Smart contracts form the bedrock of decentralized finance, revolutionizing financial transactions by automating processes and delivering faster, more secure, and cost-effective solutions than traditional financial systems. However, not all smart contracts are analogous, with the programming language used to write them affecting their functionality, security, and accessibility.
The Move programming language has been gaining traction due to its security-focused design, making it a preferred choice for developing secure smart contracts. But what sets Move apart from other smart contract languages, such as Solidity and Rust, and are there any downsides to using it?
Move's primary advantage is its focus on security, which is crucial when dealing with financial transactions. The language ensures that assets are defined safely and securely, creating more resilient contracts that can withstand attacks.
Move's flexibility in defining and handling assets offers a high degree of configurability, making it possible to create faster and more accurate financial solutions, which in turn accelerates innovation in the space.
But what about the cons? Some developers have pointed out that Move is still relatively new, and as such, lacks the same level of tooling and support that more established languages like Solidity and Rust have. This can make it more challenging for new developers to pick up the language and contribute to the ecosystem.
Despite this, Move's unique blend of flexibility, and security makes it a game-changer for financial innovation on blockchains.
As decentralized finance continues to gain ground and blockchain technology finds its way into traditional finance, Move is poised to play a key role in shaping the future of finance. With more developers and companies exploring its possibilities, we can expect to see even more groundbreaking innovations in DeFi.
Defragmenting the User Experience in DeFi: A Call for Interoperability
One of the most crucial differences between various DeFi platforms is the implementation of tokens or coins, which are the cornerstone of the entire ecosystem. While the ERC-20 token standard revolutionized the space, it also created a problem of its own - the lack of a standardized implementation across different chains.
This has led to confusion and assumptions being made about features that aren't equivalent to each other, creating information asymmetries.
The use of the term "token" as a metaphor to describe a wide range of software abstractions is both powerful and problematic. The metaphor is useful because it makes the concept of tokens more approachable, but it also leads to confusion when different chains have completely different implementations of the same concept.
The lack of a clear and universal definition has created significant barriers to the widespread adoption of DeFi. Without a global definition, how can regulators ensure compliance and protect investors? How can insurance companies accurately assess risk? And how can the average person make informed decisions about their investments?
This issue of fragmented language is not unique to crypto and DeFi. It is a problem that has plagued technology since the beginning. Think of the early days of the internet, when there were competing standards for everything from email to file formats. It took years of standardization efforts to create a seamless user experience. And the same will likely be true for DeFi.
The good news is, there are solutions in the works. Interoperability solutions are being developed that will allow for the seamless transfer of value across different networks and protocols, regardless of their underlying technology. This will not only help to reduce fragmentation but also allow for greater innovation and collaboration between different platforms.
Ultimately, the goal is to create a user experience that is as seamless as possible. One where users don't need to worry about the underlying technology or infrastructure, just as they don't need to worry about the operating system their phone or computer runs on. It's a lofty goal, but one that is worth pursuing, as it has the potential to truly revolutionize finance.
The Benefits of Application-Specific Chains: Solving the Constraints of Monolithic Blockchain Systems
The evolution of blockchain technology is a fascinating journey marked by innovation, decentralization, and the quest for balance between functionality and limitations. It all began with the creation of Bitcoin as a response to the dominance of centralized financial systems in the late 2000s.
Ethereum followed suit by striving to maintain as much decentralization as possible while introducing a feature-rich language for writing smart contracts. However, the monolithic nature of Ethereum's general-purpose chain has its own set of constraints.
The key to solving this challenge lies in application-specific chains that can create models to address distinct problems. For instance, asset transfer functionality can be handled by a chain that focuses solely on that, similar to how Apple Pay has a simple API that any application can integrate to transfer assets.
The biggest obstacle in implementing blockchain technology in traditional institutions is ensuring that it meets their standards for quality and risk management. While it is a daunting task to balance the ideology of permissionless systems and the practical approach of traditional institutions, it is not impossible.
Developers can adopt the best practices of traditional finance and make them permissionless. This will enable them to leverage the advantages of blockchain technology while ensuring that it meets the standards of traditional institutions.
Beyond TPS and Finality: A Holistic Approach to Evaluating DeFi Platforms
Metrics like TPS and finality often dominate discussions about the performance of blockchain networks. However, experts suggest that these metrics should not be the only ones considered when evaluating the potential of DeFi platforms.
Instead, a more holistic approach is needed, taking into account metrics such as censorship resistance, growth metrics, and the number of active customers. These metrics are not only more accessible to a broader audience, but they are also more indicative of the potential success of DeFi platforms in the long run.
One of the key challenges facing DeFi is the need for better middle layers and tooling. While many developers are focused on building highly technical solutions, the real magic of DeFi lies in its extensibility and composability.
By creating more human-readable and standardized tooling, the industry can reduce fragmentation and enable greater interoperability between different protocols. This, in turn, will facilitate new use cases for DeFi that were previously inconceivable.
Although CeFi has dominated the financial industry for a long time, the potential for DeFi to eventually replace CeFi is astonishing. The DeFi ecosystem is rapidly expanding, with ongoing innovations and improvements aimed at making it more accessible to a wider range of users.
With the advent of high TPS chains such as Aptos and Sui, DeFi can beat CeFi thanks to the following reasons:
- Lower transaction fees:
High TPS chains can process a greater number of transactions per second, which means that they can accommodate a larger number of users. This can help to lower transaction fees, making DeFi more accessible to a wider range of users.
- Faster settlement times:
With faster transaction processing times, DeFi on high TPS chains can provide faster settlement times. This is particularly important for trading and other financial activities, where delays can be catastrophic.
- Better scalability:
High TPS chains can offer better scalability for DeFi applications. As more users participate in the network, the chain can expand to accommodate the increased demand. This can help to prevent congestion and ensure that the network remains fast and efficient.
- Increased decentralization:
High TPS chains can support a larger number of nodes and validators, which can help to increase the decentralization of the network. This can improve the security and reliability of DeFi applications, making them less vulnerable to attacks or malicious behavior.
Pontem is a product development platform that enables global financial inclusion through blockchain technology. Pontem is developing infrastructure and decentralized tools for the fastest and most scalable Layer 1 blockchain – Aptos.
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