In this week’s feature, we talked to Yuan Gao, Neo Global Development’s head of marketing, to share his thoughts and perspective on emergence of decentralized finance, it’s underlying components, and how to bring it to the Neo blockchain.
Yuan has work experience across numerous sectors and degrees in computer science and finance, making him well suited to adapt to the unique blockchain industry and capable of offering insight from both technical and business perspectives.
Readers interested in learning more about digital identity can join the conversation and take advantage of Yuan’s knowledge at the following thread:
NNT: What are the most important pieces of infrastructure required for decentralized finance (DeFi) applications? What applications do you think are the most interesting, and what are we missing to bring Defi to Neo?
Yuan Gao: The recent surge of DeFi marked the beginning of a major transition, the most established and revenue generating theme in the blockchain industry – crypto asset exchange – is moving on chain. All the innovations and projects, though different at the surface, are all centered around this major theme. Decentralized exchanges (DEX), automated market makers (AMM), lending/borrowing, cross-chain assets, synthetic assets, transaction routers/aggregators, and asset management are all integral parts of a sophisticated exchange system, that we can easily find resemblance to the centralized exchange space.
The core features of DeFi stand out as blockchain infrastructure matures:
However, the current DeFi system is not without flaws:
Personally I am still cautiously optimistic about the future of DeFi. From the very fundamental level, DeFi indeed mitigates some of the shortcomings of the current financial system: lower friction of transaction – especially for cross border transactions; and coded transaction logic – lower counterparty risk.
Among all those projects, a few inspired me the most. First, automated market makers such as Uniswap, Balancer, and Curve. The daily transaction volume of Uniswap exceeded 100M USD recently. They are no longer the last resort of liquidity provision for long-tailed assets, but gradually become the source of price discovery for major assets. The elegance of AMMs is that they provide instant liquidity to a certain pair / group of assets with predictable price, while reflecting the supply/demand along the curve. It becomes an essential component to the whole DeFi ecosystem, which can also be integrated with order-book based DEXs as another source of liquidity. The price on an AMM will be automatically corrected by arbitrageurs to reflect the market consensus.
Secondly, synthetic asset solutions such as Synthetix and UMA. They provide investors and users risk exposure to any kind of assets without really having the asset on chain, thus enormously mitigating the slow pace of tokenization of traditional financial assets and compensating for the lack of mature asset cross-chain solutions. While UMA is still at a relatively early stage, there are a few shortcomings for Synthetix:
There are some essential pieces of infrastructure or features for DeFi to thrive on a blockchain as a contender to Ethereum:
– Yuan Gao
Article comments