Why we need to care about current Defi growth?

  1. Introduction
  1. What is happening ?
  • multiple defi projects including lending/dex/derivatives/assets/payment cartegories are growing together

  • locked assets on defi are growing with speed of doubling every month to reach $4billion as now

  • it is not driven by one or two projects, but by decentralized set of different projects

  1. Explosion of Transactions on Ethereum Network
  • https://etherscan.io/chart/tx : Ethereum transactions are reaching the last peak in January 2018, caused by the famous Cryptokitty. It was a temporary hike because it is led by a single game. But now, we see tens of Defi projects growing together which are very reluctant to be broken by Ethereum network congestion issue

  • if gas is too expensive, a game like cryptokitty can be just abandoned by users. But, Defi is related to much larger assets and its return than relatively small amount of the transaction gas. Defi users have much higher tolerance and patience for network congestions and higher gas fees. I expect Defi will keep its growth rate much longer until it slows down to wait for Eth 2.0 scalability expansion.

  1. How we see this kind of explosion?
  • Now, people see this transaction explosion not as a bad sign of Ethereum network. Everyone knows that there exists various options for Ethereum to scale out the tps and latency. It is just a matter of time. Wonderful thing for them is that “EVEN THOUGH” gas fee is very high and latency is bad, “STILL” more and more users are coming in to even boost the growth of Defi.
  1. What is our(Cosmos Ecosystem) stance on this phenomenon?
  • 2 years ago, maybe we can laugh at such tx congestion and the old consensus technology. Now it is not the case. PoS technology is not rare anymore, and it is just a matter of time or choice for Ethereum to switch its engine to PoS.

  • Of course we can say Tendermint and Cosmos-SDK has relatively better codebase to utilize, but such special advantages worns out when we observe a lot of other tools coming inside the entire industry.

  • IBC : IBC is one of the most valuable asset for Cosmos. But any technology without usecase will not survive longer than other tools. Business does not succeed with one element. It needs technology, but other ingredients such as business development, ecosystem building, market targeting, user attraction, smooth operation, are equaly important too.

  • When we compare the ecosystem of Ethereum Defi and Cosmos, we can confidently say that we are more than 2 years behind, except for PoS consensus. Community members and atom holders, please be angry and be awaken to push “BUIDL” to attract more usecase of the Cosmos Hub. And I really think our energy should be focused more on market-driven tools rather than technological idealogical stuff. Yes, backend developers want to dig this I know, but unfortunately market doesn’t care about it much right now.

  1. Direction to Interchain Defi
  • I see the growth of WBTC(176M locked assets), RenBTC(41M locked assets, utilizing tendermint), and other baby(but with crazy growth rate) Defi projects to provide heterogeniuous blockchains to Defi users. I admit both of them has flaws and disadvantages, but markets are not too critical about it. The market utilizes what are provided, and asking for improvement in the future. We don’t need 100% perfection for the first product.

  • If Cosmos want to become the hero of interoperability, we should try our best to connect different kinds of blockchains, not only BTC, ETH, but also many other “ISLAND BLOCKCHAINS”. Honestly I see better business development from Polkadot than Cosmos to achieve this goal, despite of their late implementation, when I consider current status of Cosmos.

  1. Why I am writing this?
  • I want to stimulate and warn the community that it is the timing when we should accelerate more than 100% we can. Hopely having discussions about where Cosmos should focus on, how we can accelerate such activities, etc.

  • Atom holders have rights to blame AiB and ICF. Objectively speaking, they did a good job in some area, but some areas are under average and needs more attention. When we feel sorry about criticizing the team, I think we will be even more late.

  • But basically the reason why I am writing this is that B-Harvest is fully on this boat, and our destiny is directly correlated to the destiny of Cosmos. We have such enthusiasm and loyalty, so coming with eager to drive changes and critics of the status. Also I don’t see much of discussions like this kind of broader direction of the network. Many holders were temporary happy about IBC inclusion some weeks ago, but they are disappointing because there exists no clear business roadmap to attract IBC usecases. I would say, excessive decentralization without strong leadership is slowing down this network.

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Agreed on most points.

I think the logical step forward is for the ecosystem to better sketch out 1. what the next step looks like and 2. how we can get there.

From my personal brainstorms, I believe there exist a few pre-requisites for interchain finance to truly take off, roughly in the following order:

  1. IBC
  2. Shared security / Cross-chain collateralization
  3. Gas-efficient peggy + BTC bridges
  4. New zones

You can copy the code but you can’t copy the liquidity. So emphasis must be put on providing symbiotic features to existing DeFi applications rather than outright copying what already exists and hoping liquidity will come. I believe this will likely be in the form of new DeFi primitives unique to the architecture of Cosmos blockchains (i.e. proof-of-stake or interoperability) or providing meaningful efficiency (i.e. user convenience or scalability) to existing applications.

Some areas that I believe can provide symbiotic relationships for both Cosmos and existing DeFi applications on Ethereum are as follows:

  • Liquid staking as a new DeFi lego block
  • More efficient + more trustless BTC bridges
  • Interoperability as a scaling solution
  • Sovereign path to ETH 2.0 migration

Would love to hear what other people think as well!

2 Likes

In Kira we are working on the base alternative consensus for all DeFi projects on cosmos - MBPoS as the biggest issue we see it securing your zones. If you send more to the chain then the value of assets at stake the validators instantly have incentives to misbehave - that is lethal in case of DeFi. Only way to solve this issue is shared security for the cosmos hub, and for that we will need CosmWasm and improved gov so hub can move towards shared security model efficiently.

Only issue that I see is that ICF is not allowed to fund any projects that want to do this type of DeFi apps that we want to see, not even solutions like MBPoS to make them secure (that is before shared security even comes into play). I understand that and that’s why I think pushing towards shared security + CosmWasm + better gov is best we can do.

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@bharvest Thanks for bringing this up. It’s definitely clear that DeFi has emerged as a predominant use case in crypto, and Cosmos should want to position itself to capture growth in this market.

In regard to the broader Cosmos ecosystem — there have been some early signs of validation of the thesis around App-specific chains for cross-chain DeFi (Kava, VEGA, Acala, Terra, Celo, Thorchain, and many others), and I think longer-term, Cosmos is on the right track to being competitive in this space. However, I very much echo the concern that Cosmos is moving too slow, and I am fully onboard to jam on what we need to do to speed up the progress.

I like how @dogemos has framed things in terms of the prerequisites. IBC & shared security are the obvious must-haves, and until we have those, it will be tough for a great cross-chain DeFi ecosystem to pop up on Cosmos.

Honestly I see better business development from Polkadot than Cosmos to achieve this goal, despite of their late implementation, when I consider current status of Cosmos.

A big part of this is that Polkadot has the more complete product at this point — they’re on a clear, short-term timeline to shared security (parachains) & cross-chain communication.

The core differentiator for Cosmos is the community/ecosystem it’s built over the past couple years. Once Cosmos has IBC/shared security, its value prop grows significantly. The faster we can get here, the better —though much easier said than done. As a community, I think we need to rally to get these things knocked out before anything else. Would love to hear others’ take on what all this might entail.

One thought on this: With development decentralizing and the community pool funding key projects, we should consider offering much larger rewards to dev teams who are building key pieces of infrastructure. Cosm-Wasm, for example, seems to be viewed by just about everyone as super, super important for the Cosmos Hub, and yet we only spent about $75k (at the time) to fund development on this. Admittedly, I know little about the cost of funding development, but given the value this is going to add to Cosmos, it feels like we underpaid here. If we were to create much larger bounties for key development priorities, this would hopefully incentivize more developers to get involved and accelerate the progress. Theoretically speaking, if we can spend $1mn to drive $10mn/$100mn/$1bn in value to Cosmos, it is worth it every time.

The other question in regard to DeFi on Cosmos which has been discussed a little already is ‘What role will the Cosmos Hub play in the ecosystem?’ This is something I’m still thinking on, but at a high-level, it definitely makes sense for Cosmos Hub to own some of the key primitives of the cross-chain ecosystem we hope to build around it. This is another thing we should get started on as soon as possible.

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