Depth: Can the growing Polkadot DeFi ecosystem surpass Ethereum?


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The Polkadot blockchain platform only launched its mainnet in May, but it has become a major competitive force in the industry. In late August, after the change in the denomination of the DOT token, Polkadot became one of the top ten cryptocurrencies, surpassing altcoins such as EOS and Litecoin.

Kelvin Koh of Spartan Black, an Asian cryptocurrency fund, has stated that Polkadot may become the top three blockchains. In addition, Dan Morehead of Pantera Capital Management also recently shared his views with Bloomberg and emphasized that although Polkadot’s current market value is about 10% of the value of Ethereum, his company believes that Polkadot has become an “Ethereum competition. The probability of the opponent is much higher than 10%.”

Although people have been speculating about which factors will drive the price of ETH, there has been a trend in its life cycle: as more and more developers build applications that are attractive and valuable to users, the price of ETH The outlook is even more bullish.

If the same is true for Polkadot, then the analyst’s forecast seems promising. The popularity of decentralized finance caused the price of ETH to double this summer. Now, DeFi developers seem to be paying attention to Polkadot. They hope to take advantage of its fast throughput, Substrate development framework, and ultimately interoperability.

However, Peter Mauric, director of Parity’s public affairs department, told cointelegraph: Because parachain is a different type of smart contract that can be implemented in various operating environments, Polkadot has great potential to expand the existing DeFi ecosystem. He further elaborated:

“Once these powerful DeFi infrastructures are in place, the potential for innovation will greatly increase, and we see interesting new possibilities such as decentralized sovereign wealth funds and cross-chain currency markets, which lay the foundation for the next generation of DeFi protocols. Foundation.”

Many of these new DApps and parachains also received funding from the Web3 Foundation, Polkadot’s main sponsor. Mauric confirmed that Polkadot Treasury is also trust-free providing funding for projects that it hopes to build on Polkadot. So, who is involved in Polkadot’s DeFi ecosystem and how do they compare with their rival Ethereum?

A complete DeFi platform

Acala is a decentralized financial center, known as the “one-stop DeFi service center”. It provides some features similar to Maker, allowing users to borrow its aUSD stablecoin. However, it also operates decentralized exchanges in accordance with an economic model called “decentralized sovereign wealth funds”, which aims to provide a continuous means to maintain the development of the ecosystem. Acala is also one of the first companies to participate in the new Polkadot specific crowdfunding model, which is called the first parachain issuance.

Acala is the first over-collateralized stablecoin project developed using the Substrate framework. Acala co-founder Bette Chen told Cointelegraph: “For example, by using Substrate to build Acala, we can customize the fee schedule and allow users to pay in any acceptable token. The benefits of innovation are unlimited because we can add New features and solve problems without hard forks.

Mortgage and lending platform

Mantra DAO is a DeFi platform managed by the community for mortgage, lending and governance. The platform’s OM token grants voting rights, which affect various factors, such as the level of inflation or interest rates. Mantra DAO will run on the RioChain infrastructure and is becoming a fully decentralized DAO managed by its community.

Mantra DAO believes that scalability and interoperability are based on Polkadot’s main selling points. Its co-founder and board member Will Corkin explained to Cointelegraph: “Interoperability is a big step towards making DeFi mainstream and getting rid of the current The network problems faced by platforms on Ethereum.” He further added: “Not only can we bring Ethereum DeFi to Polkadot, but we can also bring all DeFi to all peers on all platforms.”

Another project, StaFi (short for Staking Finance) is an agreement that allows users to release liquidity in mortgage tokens. It works in a similar way to Year.Finance or Compound. It issues synthetic tokens rToken, which represent equity in the pool and can be used in other protocols. In addition to funding from the Web3 Foundation, the project also received support from B-Tech, which is a technology accelerator for the Bitmax exchange.

DEX and liquidity

Polkastarter on Polkadot is equivalent to Uniswap, which is a decentralized exchange that allows users to use cross-chain exchanges to start interoperable token pools. Projects can list their tokens and use the platform for crowdfunding in decentralized auctions. The development team has created a proof of concept on Ethereum, and its roadmap includes migration to Polkadot from early 2021.

Another project, Equilibrium, migrated from the EOS blockchain to Polkadot. It started as an alternative to MakerDAO, but as it migrates to Polkadot, it plans to expand its product range to include decentralized exchanges, synthetic asset platforms and new interoperable stablecoins.

A bridge to Ethereum DeFi

Moonbeam is the Polkadot parachain to Ethereum, which enables developers to build smart contracts compatible with Ethereum. Through Moonbeam, DApp can be integrated with other blockchains, including Bitcoin. This also means that existing Ethereum-based front ends can be connected to Moonbeam to interact with Polkadot-based DeFi applications.

Derek Yoo, CEO of Moonbeam development company PureStake, explained this feature in detail in an interview with Cointelegraph: “Moonbeam allows ERC-20 tokens to be transferred between Ethereum and Polkadot, which is required for cross-chain deployment. There is an application example on each platform.”

Moonbeam has found a tacit understanding with Ethereum-based DeFi projects, which hope to extend to Polkadot. It announced a number of partnerships with well-known DeFi projects, including SushiSwap, BetProtocol and Linear Finance, and Yoo said there are more planned.

DeFi infrastructure

Ethereum DeFi has grown up, and many innovators continue to emerge and develop on the basis of its predecessors. However, many projects on Polkadot have seen an opportunity to use the Polkadot parachain to establish an infrastructure layer for cross-chain transfer of assets and transactions.

Rio DeFi’s RioChain is a Polkadot parachain built using Substrate and provides a ready-made toolkit for DeFi DApp builders. Including RIO generic asset bridge (generic asset bridge), which supports simultaneous cross-chain transfer of multiple assets. All Rio’s core tools can be accessed through the project’s website interface, including Rio wallet and Rio block explorer.

The team behind RioChain predicted multiple cross-chain DeFi use cases, including Bitcoin lending platforms, Bitcoin savings account applications, and instant stablecoin loans based on cryptocurrency portfolios. In addition, RioChain believes that the elimination of intermediaries (such as PayPal) that obtain considerable income from merchant payments may disrupt the global e-commerce payment market.

Bithumb Global also launched its own parachain Clover on Polkadot. In order to promote the development of DeFi, Clover will seek to utilize cross-chain functions, and include some of Bithumb Global’s own internal applications, decentralized exchanges, wallets, and lending agreements. Norelle Ng, managing partner of Bithumb Global, told Cointelegraph that the availability of an infrastructure layer like Clover will ultimately help improve the user experience of DeFi: “The modules provided in Clover will greatly reduce the technical development threshold for upper-layer applications.”

Akropolis is a project built on Ethereum, which provides an open source protocol for DeFi DApp developers-actually a DeFi operating system. In the context of Polkadot DeFi, it has received funding from the Web3 Foundation to provide a platform as a service for Substrate nodes. It also provides a mortgage entrance as the front end of Polkadot. Akropolis has been integrated with Ethereum DeFi DApp, including Compound and Aave.

The road ahead of Polkadot DeFi is still long

Based on the scale of development, Polkadot DeFi looks promising. Many projects have begun to take advantage of the interoperability provided by the system. Polkadot is also trying to make progress in attracting developers from other platforms.

However, due to the current lack of composability between Ethereum and Polkadot applications, it will take some time to achieve interoperability. For example, it is currently not possible to arbitrage on different decentralized exchanges on other platforms through lightning loans on one platform. Mauric stated that Polkadot is achieving composability and acknowledged that this is a key development process.

“For DeFi and the entire Web 3.0, cross-chain composability is a must. We have seen the desire for the trust-free, anchored Bitcoin in Ethereum to be used in DeFi. This is a clear early sign. Cross-chain connectivity and composability are coming. Solving cross-chain composability is an important milestone.”

However, before cross-chain composability becomes a reality, many DeFi DApps on Polkadot may just seek to replicate existing applications on Ethereum. After all, this situation has already happened on the Binance Smart Chain, where DApps like BurgerSwap and BakerySwap choose to replicate SushiSwap based on Ethereum.

The value of simply copying existing applications is questionable. Therefore, Polkadot DeFi will need to provide more products to attract users and keep users away from the combinable and liquid DeFi ecosystem of Ethereum.

In the end, whether Polkadot will steal the DeFi crown from Ethereum is still a matter of time. However, perhaps the more pressing question is whether Polkadot can finally improve DeFi to increase its adoption rate and make it more friendly and convenient for ordinary investors and consumers. In addition to interoperability, this seems to be Polkadot’s ultimate goal.

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