The TRUTH About DEFI

so what is the current state of decentralized finance where are we with different scaling solutions on ethereum how about defy on other chains and what is the most likely scenario when it comes to the future of defy you'll find answers to these questions in this video before we begin if you want to learn more about decentralized finance and the technology behind it make sure you subscribe to my channel hit the bell icon and enable all notifications and one more thing before we start phenematics has recently hit 000 subscribers on youtube this is pretty amazing and i would like to say a big thank you to all of you watching my videos also a special shout out to all of our patrons who actively support this channel if you'd like to become one of them and join our defy community you can check it out here decentralized finance together with the whole cryptocurrency space started 2021 with a bang in just a few months the total value locked in defy grew from around 15 billion dollars to an astonishing 45 billion dollars the volume on decentralized exchanges has also been at an all-time high with over 50 billion dollars traded each month on top of this a lot of defy tokens have seen a significant increase in value which attracted even more people to this still very nascent space we've also seen a lot of development new projects popping up pretty much every day already existing protocols launching their new versions other well-known projects migrating or announcing their migration to different scaling solutions we also had some big news for example visa announced they will start settling transactions in usdc on ethereum this is amazing not only for ethereum but also for the whole device space in general despite all of this development it seems like defy is at the crossroad on one hand we have d5 protocols on ethereum exploring multiple different scaling solutions to alleviate high transaction fees on the other hand we have other chains trying to attract both the new and the already existing d5 projects when it comes to scaling d5 on ethereum we have quite a few options either already available or not being too far from a full launch these options belong to one of the two categories layer 2 scaling and side chains layer 2 scaling relies on the security of the main layer the ethereum blockchain side chains rely on their own security models usually by having a separate consensus mechanism they can also have additional security guarantees that leverage the main layer but despite this they're usually considered less secure than layer 2 solutions one of the most discussed layer 2 options when it comes to defy are roll-ups roll-ups provide scaling by executing transactions outside of layer 1 but posting transaction data on layer 1 which allows rollups to be secured by the main ethereum chain there are two types of roll-ups optimistic roll-ups and zk roll-ups optimistic roll-ups run an evm compatible virtual machine which allows for executing the same smart contracts as on ethereum optimism and rbi term are currently the most popular options optimism has been partially rolled out on the issue mainnet with a limited set of partners to ensure that the technology works as expected synthetics has already migrated its taking module to optimism which allows for minting susd and receiving staking rewards in a fast cheap and secure way another big partner that has already announced its launch on optimism is uni swap with its long-awaited uni swap v3 our bitram on the other hand seems to be even closer to being fully launched on the ethereum mainnet they partnered with a few major d5 projects like auger and banker zika roll ups although faster and more efficient than optimistic rollups do not provide an easy way for the existing smart contracts to migrate to layer 2 at least not just yet with zk roll ups we have a few options available mainly starkware and zk singh starkware base rollups are already extensively used by projects such as diversify immutable x and dydx zk singh is working on an evm compatible virtual machine that will be able to fully support any arbitrary smart contracts written in solidity they are targeting august for the mainnet release besides layer 2 options we have side chains like the matic pos chain and the x die chain we've recently seen a lot of projects launching on both of these chains this includes sushi swap polka markets and ave on the matic pos chain and perpetual protocol realty and gnosis on xdi both chains are also integrated with chain link oracles matic after its recent rebranding to polygon also aims at expanding its available scaling solutions and add things like zk and optimistic roll ups on top of already available solutions the pos chain and the plasma chains although layer 2 scaling and side chains can alleviate high transaction fees and increase both the throughput and speed of transactions they come with their own challenges the biggest one that can negatively affect d5 is the lack of smart contract composibility between different scaling solutions composability is clearly one of the most important characteristics of defy when it comes to the ethereum main chain a single transaction can interact with multiple different defy protocols for example a smart contract can borrow funds on ave swap these borrowed coins to other ones on uni swap and provide the swapped coins to a yield farming aggregator all of this in one single ethereum transaction although composability is still possible within one scaling solution it would break if even one of these protocols is not available on this particular scaling solution continuing with our previous example if ave is only additionally available on matic pos and uni swap is only available on optimism we wouldn't be able to compose one transaction that calls both the others and uni-swap smart contracts in any way outside of the ethereum main chain the next issue is the interoperability between different scaling solutions what if we borrowed fans on other on the matic pos chain but we later want to swap them using uniswap on optimism at the moment we would have to withdraw them to the ethereum main chain before being able to use the coins on optimism this of course adds a lot of friction as some withdrawals can take a long time to be fully settled especially when it comes to optimistic rollups having multiple scaling solutions also provides us with some challenges when it comes to the existing liquidity in d5 instead of having a lot of liquidity available on the ethereum main chain in a few major protocols we'll see the existing liquidity being split across the ethereum main chain multiple implementations of rollups and different side chains fortunately most of these challenges are solvable we'll probably see a lot of bridges between different scaling solutions which should help with reducing friction on top of this the other approach is to create a whole ecosystem that is interoperable by default this is the approach that polygon decided to go with also it looks like most liquidity outside of layer 1 will concentrate around a few most popular scaling options with the biggest number of high quality d5 protocols available despite the existing and future challenges ethereum is clearly an undisputed leader when it comes to d5 it offers credible neutrality decentralization and a strong community driven not only by the recent price rise of eth but even more about building the future of finance and web 3. when it comes to defy on other chains there are also a few options available let's start with bina's smart chain yes i know bsc is not always even considered as defy and more like cd5 and you can find more about it here in this video nevertheless bsc attracted a lot of users and trading volume in a very short period of time bsc as a fork of ethereum allows for deploying the same smart contracts as the ones already available on ethereum one inch and alpha homora are some of the projects that decided to expand the reach and launch on bsc in parallel to ethereum besides binance smartchain there are a lot of other chains that come with their own security models and different levels of decentralization many also put a lot of effort into building their own defy ecosystem including solana with its decentralized exchange theorem avalanche with pangolin and even bitcoin where defy can be built on top of side chains the challenges with all of these blockchains are similar to the challenges of different scaling solutions on ethereum mainly the lack of composability and interoperability fortunately enough there are also a few other projects that focus predominantly on these problems cosmos aims at creating the internet of blockchains by leveraging its inter-blockchain communication protocol polkadot on top of its parachain technology that allows for creating sovereign blockchains also aims to make bridging to the external blockchains easier 4chain focuses on cross-chain liquidity and decentralized exchange of assets between different blockchains with all these options within the ethereum ecosystem and outside of it most people feel lost trying to answer the question what will defy look like in the future although it seems like defy is at the crossroad in practice we are just experiencing an ongoing cambrian explosion of this nathan space the truth is that at this point no one can be certain what the future of d5 will look like what we can pretty much assume though is that every single potential solution will be explored some of them will survive and thrive while others will become irrelevant over time defy on ethereum with different layer 2 options and side chains define and sidify on other chains interoperability between blockchains or maybe something completely new it's almost guaranteed that all of these will be tried and after some time we're going to end up with the most adopted and hopefully most decentralized working solution and even though some people may not like it this is the beauty of defy and any other open ecosystems like this the exact details might still be quite vague but the future of the whole defy space is brighter than ever difa is here to stay we may not be 100 sure of its final form but it's almost certainly the future of finals one thing that can be used to indicate which projects and ideas are here to stay more than anything else is the next most likely inevitable bear market during this time most bad ideas and projects without strong communities die off and the remaining users concentrate around the best long-lasting protocols when it comes to individual d5 projects some of them will thrive and capture value across multiple scaling solutions or even across multiple blockchains others won't be able to do it and new protocols will be able to steal their market share because of this ever-changing space it's really important to keep learning and expanding our knowledge about defy crypto finance and technology in general fortunately finematics is here for you and will always deliver fresh and relevant content to keep you up to speed so what do you think about the future of defy what will it look like in its final form or maybe there is no final form at all and the whole space will keep evolving comment down below and as always if you enjoyed this video smash the like button subscribe to my channel and check out cinematics on patreon to join our defy thanks for watching

Channel: Finematics

Views: 75,274

Keywords: defi, decentralized finance, ethereum scaling, ethereum layer 2, polygon, matic, binance smart chain, bsc defi, solana, solana serum, cosmos crypto, polkadot, bitcoin defi, ethereum, thorchain, thorchain defi

Id: Ia0DVfRJKy8

Length: 12min 13sec (733 seconds)

Published: Mon Apr 05 2021