Rai Finance relies on Polkadot’s scalability advantages to provide traders with interoperable asset trading, social trading, and privacy off-chain trading services.
Written by: Liam Kelly, at Crypto Briefing
Translation: Lu Jiangfei
Rai Finance is another DeFi project that escaped from Ethereum and turned to Polkadot. Polkadot not only has the advantage of scalability, but also provides support for key DeFi functions for many projects.
Content overview:
- Rai Finance is a new DeFi protocol based on the Polkadot blockchain;
- Rai Finance provides traders with interoperable asset trading, social trading and privacy off-chain trading services;
- Many features of Rai Finance will not be launched until 2021, which requires attention.
Rai Finance is a DeFi platform built on the Polkadot ecosystem. The project hopes to be further developed on a more scalable network, so as to avoid too many pain points on Ethereum.
Although the current congestion problem of the Ethereum network has been somewhat alleviated, in the short term, there are still few network expansion solutions available for DeFi projects in the market. On the other hand, although the Ethereum 2.0 beacon chain (Beacon Chain) has been launched and has a promising future, users may have to wait a few years to enjoy the benefits of network upgrades. Therefore, for many of those built on the Ethereum network As far as DeFi applications are concerned, if there are really high-quality “Ethereum alternatives” on the market, and the services and functions are good, it is obviously a good choice.
In fact, there are already some “Ethereum alternatives” on the market today, such as Cosmos, EOS, Tron and Cardano, as well as Ripple, which has recently been integrated with Flare Network. By providing users with services such as decentralized transactions based on automated market makers, non-custodial lending, and income farming, these “Ethereum Alternatives” have successfully attracted many crypto project products.
However, for now, the most powerful “Ethereum Alternative” in this field is still Polkadot. There are many well-known DeFi projects based on Polkadot, such as Stafi, Acala, Centrifuge, and Polkastarter. Rai Finance follows this trend, but adds more unique features, such as:
- Zero-knowledge proof (ZK-Proof) transaction
- Self-balancing token collection
- Use basic protocols to achieve interoperability with different asset standards and market-making algorithms
However, it remains to be seen whether these features are sufficient for Rai Finance to succeed.
Rai Finance “bets” Polkadot
As the decentralized financial industry is booming, Rai Finance chooses to “bet” on Polkadot.
Although there have been various hacking and protocol vulnerabilities in 2020, it is undeniable that the decentralized financial market still shows no signs of decline. On the contrary, the entire industry is getting better and better, and it may even become the backbone of the cryptocurrency industry. As shown in the figure below, the total amount of DeFi locked up has been showing an upward trend in 2020 (Source: DeFi Pluse):
If you analyze the transaction volume data of various DeFi projects, you will find that Ethereum is still in a dominant position in the decentralized finance field today-of course, the performance of the Bitcoin Lightning Network is actually pretty good. However, it seems that the development of the second-tier solution is not going smoothly. Among the total trade volume of 14.61 billion U.S. dollars in the entire industry, the transaction value executed through the second-tier solution is only $20.7 million.
However, with the exception of Ethereum and Bitcoin blockchains, some data aggregators have not attracted and integrated too many DeFi projects. Of course, there are some exceptions in the market, such as:
- Flamingo Finance, a DeFi project built using the EOS blockchain, attracted nearly US$2 billion when it launched, and the project is mainly for Chinese market audiences;
- The Tron network has also been working hard to cultivate the DeFi ecosystem. They have launched many Ethereum-based projects, such as JustSwap, but unfortunately, many people know that the high transaction volume data of JustSwap mostly comes from wash transactions. The user, transaction volume and transaction volume trends on JustSwap in the past 30 days (Source: DappRader):
It can be seen from these actual cases that many “Ethereum substitutes” have not been supported by organic users, and their practicability cannot meet market demand. Although these so-called “Ethereum Alternatives” have higher throughput, their success seems to be only temporary. For example, the high transaction volume of Flamingo and JustSwap is mainly due to attractive incentives, once these incentives are over , The transaction volume will fall along with the related DeFi tokens.
Therefore, simply betting on DeFi is not a particularly wise choice. Maybe every project should be built on a more optimistic blockchain-and this is precisely the main reason why Rai Finance tried to choose Polkadot.
Polkadot is currently one of the most anticipated blockchain networks in the crypto industry. The mainnet was launched in 2020 and soon attracted many crypto projects that “cannot stand Ethereum”. In addition to its advantages in scalability, another reason why Rai Finance chose Polkadot is that Polkadot has the ability to interact with other blockchains (including Ethereum). For example, the software development company Snowfork is developing with the Web3 Foundation People cooperate to build a two-way bridge between Polkadot and Ethereum, and ultimately deliver direct smart contract instructions. The initial implementation of the bridge is very simple and will allow the transfer of Ethereum and ERC-20 tokens to the Polkadot blockchain.
Thanks to the strong support of the basic layer and ecosystem, Rai Finance can focus on the development of more subtle functions, such as tokenized transaction collections, off-chain transactions, and access to various types of market-making algorithms.
“Out of the box” Rai Finance
Social trading
In retail finance, one of Rai Finance’s more attractive products is: Social Trading.
On trading platforms such as eToro, social trading is actually very popular. This type of trading integrates communities where specific assets and markets are traded and learned. Take eToro as an example. The transaction has a popular investor program (Investor program), which implements the concept of social trading very well, and provides a channel for amateur traders to make them more like Professional traders have access to stocks, precious metals and even cryptocurrency transactions.
In the DeFi industry, Set Protocol has also launched a similar product, but unlike eToro, Set Protocol allows traders to follow the most popular cryptocurrency investors in a non-custodial manner. dHedge and Melon Protocol are also two other DeFi protocols that use social trading models.
According to the disclosed marketing materials, Rai Finance will launch similar products in the fourth quarter of 2021. Users will be able to tokenize the activities of traders. The tokens can be withdrawn or exchanged for legal tender or other cryptocurrencies.
In addition, both users and traders can pledge native RAI tokens to show their confidence in a particular strategy. Therefore, if traders’ “staking” strategy is successful, then they can also profit from it, and those “fans” who use the same strategy to pledge tokens can also gain profit. This mechanism is essentially different from eToro’s products. different.
The token economy of RAI will be discussed in detail later in this article.
Zero-knowledge proof
The second function provided by Rai Finance is private off-chain transactions. For those who have been paying attention to two-layer solutions, zero-knowledge proof (ZKP) has become one of Ethereum’s many scalability solutions. For example, Matter Labs focuses on exploring this solution. In addition, zero-knowledge proof can also provide traders with privacy advantages that most other public chains cannot provide.
Rai Finance does not store every transaction on the chain. Like other zero-knowledge proof-centric projects, Rai Finance allows the blockchain to store hashes with a small amount of data in a batch of transactions, which will be processed off-chain , And then verify on the chain.
Since the core of Rai Finance is a decentralized trading platform, the use of this technology can prevent the platform from blocking due to a large number of orders. For example, Matter Labs previously boasted that their zero-knowledge proof iteration can reach VISA throughput, that is, processing thousands of transactions per second.
However, whether Rai Fiance can reach a similar level remains to be seen.
Market making variability
The last important product component of Rai Finance is to interact with various market-making algorithms around the agreement.
There are many well-known automated market makers (AMM) in DeFi, among which Uniswap is currently the most popular automated market maker on the market. As a specific type of automated market maker, the platform uses a type called constant product ( CPMM) or constant function (CFMM) market making algorithm. Balancer and Curve are very similar to Uniswap. The difference is that these two protocols can accommodate more than two assets in a liquidity pool and provide traders with greater flexibility in assigning the weight of each asset.
Dodo Exchange is another decentralized exchange (DEX) that uses a completely different method of market making, called “active market maker” (PMM). Through this solution, DODO Exchange has corrected many errors in the current automated market maker field. Thanks to this, the exchange has received a lot of investment and interest from many big-name companies in the crypto industry.
As technicians and computer scientists continue to explore this field, more efficient algorithms will continue to emerge, but this trend will eventually cause the entire market to become “separate”, resulting in higher liquidity of certain assets on a platform. On other platforms, liquidity is lower, and traders have to pay attention to the liquidity of multiple exchanges in order to invest in exchanges with the best interest rates and the lowest slippage. .
Of course, it remains to be seen whether this will become a real problem for people in the DeFi industry, but Rai Finance seems to want to try to solve this problem, and the development team behind it is working hard to establish a stop for all market maker algorithms. Service. However, the technical details related to this function have not been disclosed too much. At the time of writing, the Rai Finance team only activated the basic token exchange function similar to Uniswap.
Rai Finance community and team
The Rai Finance team has three core members who have been in the crypto industry for more than three years, namely:
- CEO Kevin Lee
- Chief Technology Officer Minkyu Cho
- Chief Operating Officer Sandy Liang
Before founding Rai Finance, Minkyu Cho also co-founded DEXEOS (a decentralized exchange based on the EOS blockchain) and the Korean social trading application League of Traders. These experiences may be highly related to Rai Finance products. It is worth mentioning that the technology partner of DEXEOS and League of Traders is Wizpace, and now it has also become the technology partner of Rai Finance.
So far, Rai Finance has attracted 2,880 followers on Twitter, and the Telegram group has 3,297 members.
In October 2020, the project successfully raised a US$1.5 million in financing. The joint lead investors are GBIC and Alphabit.
Interested readers can view the Rai Finance project code base on Github and try to use its first and currently only redemption function. According to Rai Finance, the team will launch most of the features next year, the most notable of which is the mainnet launch on the Polkadot blockchain in the second quarter of 2021.
At this stage, Rai Finance proposes to issue 1 billion RAI tokens, but apart from the issuance volume, there is very little disclosure of other information about the tokens. At present, it is only known that RAI tokens can be used for mining, ecosystem, community and team incentives .
Some final thoughts on Rai Finance
For any blockchain startup company, “betting” on the continued success of DeFi and Polkadot may really be a feasible proposition. As mentioned in the opening paragraph, despite the DeFi industry encountering various problems in the summer of 2020, the industry is still booming.
Similarly, compared to other so-called “Ethereum killers”, Polkadot has a great chance of occupying the largest market share. Of course, users have also noticed that there have been new competitors in this field, such as Near Protocol and AVA Labs. These blockchains all have good scalability and interoperability.
As stated in this article, Rai Finance hopes to take full advantage of the ever-growing social trading trend-it turns out that allowing less experienced traders to understand what experienced professionals think is a good business model. In this field, Set Both Protocol and eToro have been successful. On the other hand, based on Polkadot’s interoperability characteristics, Rai Finance has also created an interoperable market-making platform, but it remains to be seen whether traders really find the platform useful.
The last thing to say is that the Rai Finance team has extensive experience in the cryptocurrency industry, and team members have a very rich background in the field of first-level protocols, decentralized exchanges and social trading. When this article was published, although Rai Finance only launched one token exchange product, they should launch more new products in 2021. We expect to see a series of updates in the spring and early summer of next year.
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