Building The Future of Cross-Fi
Advantages of Decentralized Finance
State of DeFi & Current Primitives
Advantages of Decentralized Finance:
- Permissionless: Anyone is able to access decentralized financial networks through an internet connection. No individual can be denied service based on who they are, where they were born, or how much money they have
- Programmable: Developers can create and intertwine financial services at a very low cost. Plug and play architecture helps compound the power of these services
- Transparent: Public blockchains are transparent and auditable. They retain best of both worlds: informationon financial exchanges are available while privacy can be preserved
- Trustless: Users don’t have to trust a central party to ensure that transactions are valid
- Censorship Resistant: No central party is able to reverse the order of transactions and deem a validated transaction invalid at some later point in time. Similarly, a central party can’t turn off the service and anyone with access can use the network
Popular DeFi use cases:
- Lending – Borrowing/Lending on a public blockchain with much less friction vs. traditional platforms.
- Derivatives/Assets – Synthetic assets which are derivatives of other assets allows exposure without having the actual asset.
- Decentralized Exchanges – Traders can trade on platforms that do not hold their funds custody
- Payment solutions – Traditionally centralized payment solutions can be decentralized to be as effective while staying censorship-free
The DeFi Stack
Risk is not removed, but shifted from counterparties to smart contracts
The DeFi Stack: Stablecoins
Stablecoin implementations:
- Traditional Collateral-backed
- Crypto Collateral-backed
- Hybrid / Algorithmic
Traditional Collateral stablecoins include Tether (88% of the total stablecoin market share) and USDC (4.4%)
MakerDAO’s Dai is the most prominent crypto collateralized stablecoin, with a market cap of ~$86M
The DeFi Stack: Lending Protocols
The DeFi Stack: Oracles
Oracles provide smart contracts with data from the outside world (i.e. the price of ETH to trigger a liquidation if collateralization drops below requirements)
Current approaches to ensure validity of oracles include:
- Multiple data sources – Safer, but more expensive
- Multiple oracles – Reduces probability of collusion
- Financial incentives / penalties – Earn rewards for performing honest work, but penalize if they misbehave
There is no one-size-fits-all solution as dApps require different guarantees based on their specific use cases, with the trade-off being safety vs. cost.
The DeFi Stack: DEX
Decentralized exchanges operate without a central authority or middlemen, allowing users to transact peer-to-peer with little risk of censorship
While DEXs historically suffer from price discrepancies across exchanges, the increasing popularity of DEX aggregating tools has tightened the spread across these exchanges
- Protocol for automated token swapping on Ethereum
- ETH and ERC20 tokens are pooled in reserves, and the ratio of these assets determines the exchange rate
- Decentralized ERC20 exchange with token for staking
- Similar to centralized alternatives, but trades are settled on-chain
- Protocol for peer-to-peer asset exchange on Ethereum
- Native ZRX token used for governance and fees
- Offers tools for other DEXs to implement
The DeFi Stack: Payments
Challenges Beyond DeFi: Cross-Fi
What’s holding #DeFi from mass adoption today?
- Availability of fiat on / off ramps
- Lack of financial privacy
- Scalability / high gas costs
- Smart contract / technical risk (and lack of insurance)
- Lack of identity / credit scores leading to over-collateralization requirements
- Friction around UX / UI
Scalability / high gas costs
Lack of identity / credit scores leading to over-collateralization requirements
Differing approaches based on the applicant’s credit profile:
- Unbanked or “thin-file” (no significant credit history or identity)
- Alternative credit scoring (Tala, CELO) – Rental, phone, TV payments, Bank account information (deposits/withdrawals), Social media / mobile phone data, Public address credit history (Graychain)
- P2P / social vouching (VouchForMe)
- Existing credit, but no blockchain identity / credit score
- Integration of traditional credit scoring data (Bloom, Colendi)
- Privacy preserving solutions (Enigma and Spring Labs)
- Decentralized identity solutions (uPort)
- Wyre’s ERC-721 compliance / identity token
A proof-of-stake smart contract platform that allows people to send value to each other with only a phone number
Reputation is attached to phone numbers and measured through the use of EigenTrust, a P2P reputation management algorithm based on mobile phone data and attestations
Celo allows for multiple stable-value currencies where each coin is pegged to a measurable value such as the Dollar, Euro, the price of a barrel of oil, etc.
cGLD, the native digital asset of Celo, is an ERC-20 compliant token and will be partially used to fund the reserve
Smart contract / technical risk (and lack of insurance)
MakerDAO has established a security roadmap for the upcoming Multi-Collateral Dai launch, showcasing best practices:
Emergent solutions like NexusMutual provide “smart contract cover” to secure risk and potential bugs in code (i.e. DAO hack or Parity multi-sig freeze)
Availability of fiat on / off ramps
Increasing competition should lead to fee compression
Centralized
Non-custodial
- Peer-to-peer trading platform to facilitate the sale/purchase of crypto for fiat
- Uses smart contracts to lock up crypto assets and wire transfers for payments
- Only available with European banks, where Open Banking Laws allow oracles to verify transactions and notify smart contracts to unlock assets
- Fees are up to 3% of the transaction
- Currently only supporting ETH and DAI
Friction around UX / UI
“Over 90% of users who try to use a dApp will give up when told they need to download Metamask”
- Wallet SDKs enable a Web2 login experience with a username and password, removing the requirement to download a separate extension in order to use the app
- Smart Contract Wallets can be programmed to have the same security guarantees as a traditional bank (account recovery, fraud protection, and withdrawal limits). Implemented via Smart Contract Wallets, Meta transactions allow users to use dApps immediately via sponsored gas fees, removing the need for users to pre-purchase crypto or install a browser extension
Lack of Financial Privacy & Auditability
- proof of solvency, capacity-specific keys
- supersonics, bulletproof, zether, authenticated data structures
- privacy vs. regulatory compliance
Harmony’s contribution to DeFi & Cross-Fi
- Fiat Integrations & dApp Payments via Carbon
- Developer tools to port EVM compatible dApps
- Bridges from ERC20 / BEP2 to native ONE token
- Lower gas fees w/o sacrificing decentralization
- Unbiasable randomness
- Decentralized exchange functionality
Gateway: dApp Payment & Fiat Integrations
- 30-second fiat on-ramp to ONE
- Harmony-native stablecoins
- 5-line code to integrate
Decentralized market makers via Hummingbot
- Open finance, open source
- 102 decentralized market makers constituting 8% of ONE volume
- for arbitrage, dex, algo trading
Developer Tooling
Harmony cross-chain bridge
- Gateway to swap $ONE BEP2 tokens to ERC20, and in the future, ERC20 to native mainnet $ONE tokens
- Providing better liquidity for the $ONE ecosystem
- Enabling cross-chain interoperability
Randomness vs. Fairness
- States/moves stored on chain
- Unbiasable dice for random puzzles as fair tournaments
- Built-in staking & betting
Current challenges within cross-border payments
Remittance cost drivers:
- Inefficient correspondent banking systems
- Lack of market competition in certain corridors
- Regulation and compliance costs
- Agent network infrastructure
Estimated $32 billion in remittances aren’t sent due to high transactional costs associated with cross-border money transfers
Cross-Fi: DeFi meets Cross-Border Payments
Current challenges:
Slow
Multi-hop money movements between correspondent currency pairs can take between 1-5 days to fully settle
Limited accessibility
Cash dependent transactions rely heavily on local distribution, which is scarce, especially in rural areas
Limited trust
Last mile transfers rely on fragmented P2P networks with centralized counterparties
Friction across geographies / markets
Current digital payment solutions can be limited in coverage (i.e. Grab cannot be used in China)
Harmony offering:
Finality
Harmony provides instant finality, reducing settlement time to seconds vs. days
Digital wallets
1.7 billion adults remain unbanked, yet two-thirds of them own a mobile phone1
Trust layer
Cryptography, combined with Harmony’s immutable ledger, provides trust without the need for intermediaries or centralized 3rd parties
Borderless
Fully compliant regional solutions combined with low cost fiat on and off ramps reduce geographical frictions
Harmony’s Cross-Fi Solutions Roadmap
Research
Cross-Fi:
- Transaction value proposition (settlement, peg, rates, identity)
- Financial products with China / India / Vietnamese currency pairs
- Remittance, billing, payroll in Europe
Privacy
Ring Signature Implementation on Harmony, enabling obfuscation of transactions behind a group of similar transactions
Audible privacy financial transactions with Findora collaboration
Tooling
Cross-border payment stack (lending, identity, stablecoins)
Simplified on-boarding experience to enable mass adoption
Development of fiat on / off ramps and exchange venues
Adoption
Decentralized credit facility platform, where users can use ONE as collateral to mint various fiat-pegged stablecoins
Cross-border payment applications leveraging Harmony’s scalability, fast finality, decentralization and low transaction costs
Help us build the future of Cross-Fi
Meet our team in Silicon Valley or in our upcoming partnership roadshows:
Harmony India Roadshow
- Delhi: Nov 7-9th
- Bangalore: Nov 7-9th
- Get in touch: harmony.one/india-event
China
- Beijing Office Q4 2019
- Shanghai Dec 2019 – Jan 2020
Links:
- Binance Launchpad, Mainnet Milestones
- Ambitions on Sleeve & TGI Community
- Bring Research & Privacy to Production
- Coinbase Shortlist, Acquisition w/ Animoca
Appendix
Wave Digital Assets is a diversified asset manager built to bridge the gap between institutional capital and the digital asset markets
Index
- Select 20 Index + Digital Fund in Q1 2019 and BTC Income & Growth Digital Fund in Q2 2019 launched
- Roadmap contains 14 other digital security issuances within the next 24 months
Fund
- Early-stage crypto hedge fund started by the Founder of Wavemaker Partners
- Invests in both equity and tokens of early stage companies and cryptocurrencies
Harmony: Solving the Quadrilemma
Decentralization: Origin of 1,000+ Nodes
- 80% nodes by community
- 56% first-time operators
- 56% first-time operators
Quadratic Voting vs Capped Median
- Cap #stakers to network seats
- Median decides effective stake
- 15% cap on top stakers from overtake, bottom from apathy
O(1) Secure Resharding
- O(n2) view change, blocks in 1.3s
- O(n2) view change, blocks in 1.3s
- Verifiable Delay Function from scratch
The DeFi Stack: Lending Counterparties
Speculating / hedging
Gaining additional exposure to a digital asset with leverage, shorting when you believe one may be overvalued
Trading / arbitrage
Taking advantage of arbitrage opportunities across exchanges
Tax deferment / working capital
Selling a coin for fiat may trigger a tax bill, whilst selling a borrowed coin may not
Not all protocols are created equal: degrees of centralization within DeFi
The DeFi Stack: DEX
DeFi Liquidity Models
