The goal of the Konomi agreement is to become a Web3.0 decentralized financial aggregation service platform, providing transaction, lending, asset management and other financial derivative services for participants in the Web3.0 ecosystem.
Original title: “Konomi: The Runner of Web3.0 Decentralized Finance”
Author: face-to-face
Polkadot founder Gavin Wood stated in ” Why Do We Need Web3.0 “, “Web3.0 will create a new global digital economy, create new business models and markets, break the monopoly of traditional Internet giants and trigger a large number of bottom-up Innovation.”
In the Web2.0 era where we live, our data is monopolized by Internet giants such as Google and Facebook; our assets are controlled by banks or centralized financial institutions, and payments and transfers require frequent service fees to these intermediaries; Our identity and credit also need the endorsement of an authority. In the eyes of Gavin Wood and many practitioners in the crypto asset market, Web3.0, which is based on blockchain, is to break the monopoly that exists in the traditional Internet, and is to let everyone control their own identity, data and assets. The Internet. Bitcoin, Ethereum, Polkadot and other public chain projects naturally have financial attributes due to economic models. DeFi (decentralized finance) undoubtedly occupies a pivotal position in the world of Web3.0.
In June 2020, Compound launched “Lending is Mining” which ignited the DeFi market. Encrypted asset investors use stablecoins, ETH and other encrypted assets as collateral for liquidity mining, that is, they can earn interest and obtain governance tokens. This can be said to be the most suitable for investors with hoarding needs. Way of financial management. With the continuous influx of investors, various liquid mining projects have also sprung up.
But as the DeFi market continues to heat up, it has also begun to expose various drawbacks, such as hackers stealing coins through contract code vulnerabilities, and “scientists” using imperfect mechanisms to obtain large amounts of “wool”. The DeFi market is gradually getting colder. According to data, starting from October 2020, the lock-up volume of ETH in the DeFi market has stagnated and started to decline in December.
Data source: DeBank
But the main reason for the DeFi market’s coldness is not the code and mechanism, but the failure to connect with the real demand scenario. After all, the loopholes can be repaired and the mechanism can be improved. At present, most DeFi products are based on Ethereum. On the one hand, they are limited to only the Ethereum ecosystem. On the other hand, due to the constraints of the TPS of Ethereum itself, it is unable to carry larger-scale applications at this stage. If DeFi wants to make great progress, it must break its limitations.
The Konomi agreement is committed to becoming a Web3.0 decentralized financial aggregation service platform, providing transaction, lending, asset management and other financial derivative services for participants in the Web3.0 ecosystem. Among them, lending is Konomi’s core business sector.
Specialized in the industry: Konomi and DeFi lending
Why did Konomi choose the lending sector? The history of the development of lending in China can be traced back to the Western Zhou Dynasty. Today, it has become the most frequent financial activity in people’s daily life, and it has also become the most basic business sector of financial institutions such as banks.
Recall that ten years ago, the country was in a stage of rapid development, with small business loan interest rates reaching about 15%. Coupled with the strong demand for loans in the market, banks can be said to be “rich and oily” and have enjoyed the development dividend of the era for nearly 10 years. The basic sectors of Web3.0 are also in the development stage, and there is also a demand for DeFi lending. For example, the Filecoin miners of the distributed storage track, due to the pre-staking demand for FIL loans, the currency hoarding party’s demand for mortgage financing, the demand for leverage of investors, and so on. Konomi’s DeFi lending aims to allow early participants to enjoy the dividends of the development of the new era in the development of Web3.0. When Web3.0 arrived, it became the mainstream DeFi financial platform.
The current DeFi loan projects are roughly classified:
1) Match lending: dYdX, Dharma, etc.
For matching loan types, take dYdX as an example. An obvious feature of the dYdX platform is that both parties need to exist at the same time and meet the same amount of loans and borrowings to match. But at the same time, the shortcomings are also obvious, unable to respond to demand in a timely manner, and transaction efficiency is low.
2) Loan-only mode: MakerDAO
MakerDAO is a veteran DeFi project on Ethereum. There are two types of tokens, ETH and DAI, in its fund pool. The lender borrows the stablecoin DAI issued by the MakerDAO platform by collateralizing ETH, but users cannot lend personal assets on MakerDAO. MakerDAO’s lending function is relatively simple and cannot meet most market needs.
3) Liquid pool lending: Konomi, Compound, etc.
Compound’s liquidity pool lending is much more optimized than the above-mentioned lending model. The most obvious feature is that the fund lender and the lender can be regarded as two liquidity pools. The borrowing demand is carried out in the liquidity pool, and the borrowing interest rate and collateral value are automatically adjusted according to market demand through smart contract algorithms. Konomi not only inherits the advantages of the Compound liquidity pool lending mechanism, but also makes it possible to provide lending services for the entire encrypted asset market based on the characteristics of Polkadot’s cross-chain.
The above-mentioned and well-known DeFi projects are basically from Ethereum, so are there any Konomi competitors in the Polkadot cross-chain field? According to the author’s research, in addition to Konomi, other DeFi projects that are currently active in the Polkadot ecology include Acala and Equilibrium.
Acala mainly provides stable currency lending services for Polkadot. Similar to MakerDAO’s DAI, Acala also has its own stable currency aUSD, which is also secured by encrypted assets as collateral. If Acala develops well in the future, Konomi will also establish a connection with it to improve the liquidity of the Polkadot ecological stablecoin.
The Equilibrium launched by the EOS stablecoin team aims to build a cross-chain token market for the Polkadot ecology, and its official business direction is indeed similar to Konomi. However, under the funding of the Web3 Foundation, the development force of this project was mainly focused on the data analysis of DeFi asset volatility and value at risk, and the function of the lending sector was relatively lagging.
So, how does Konomi continue to maintain its first-mover advantage in the Web3.0 lending track? We need to analyze it in more detail.
Seize the niche of the Web3.0 lending market
Due to its characteristics such as no entry barriers, openness and transparency, and market-determined interest rates, the calculation of its price and annualized interest rate is different from traditional financial institutions, and it has a strong geek style and decentralized autonomy.
In response to changes in the price of encrypted assets, DeFi projects such as Uniswap have launched a constant function automated market maker (AMM), which is also described in the Konomi white paper. For example, in the formula: X*Y=k (k is a fixed constant), X and Y are the number of trading pairs X and Y in the liquidity pool, respectively, and the total value of X is equal to the total value of Y, namely: PriceX * X=PriceY * Y. To a certain extent, k represents the total amount of funds in the entire liquidity pool. In the absence of new additions or reductions, the value of k remains unchanged during the transaction.
Based on the above basic formula, the corresponding price can be automatically calculated during the transaction between X and Y. However, because the model is relatively simple, it also has certain limitations, such as excessive slippage caused by insufficient liquidity. In this regard, Konomi considers a combination of weighted average and oracle access to achieve reasonable fluctuations in asset prices. In addition, Konomi will also inject asset liquidity into DeFi projects such as Uniswap based on the bridge with the Ethereum ecosystem to achieve a leverage effect.
The fluctuation of the loan interest rate in Konomi mainly depends on the ratio of supply and demand of assets in the Konomi loan pool, and is updated for each block:
Unsettled interest on market loans accumulates to the latest block:
Part of the accrued interest is retained as a reserve, which is determined by the reserve coefficient:
The update efficiency of Compound lending rates depends on Ethereum’s block production, which generates a block every 15 seconds, and the interest rate update frequency is also about 15 seconds. Polkadot-based Konomi has more advantages in this regard, as interest rates will update faster and the curve will be relatively smoother. Konomi currently adopts a mortgage lending method, which requires users to over-collateralize. With the improvement and promotion of DID’s decentralized identity infrastructure, Konomi will also design a set of reputation mechanism to reduce the burden on mortgages for users with good reputation. The Konomi lending sector is also fully compatible with Polkadot’s cross-chain ecology. Through cross-chain messaging (XCMP), all parachain assets and bridge chain assets can interact with Konomi, and its community users can also enjoy more free lending services.
The Konomi team has extensive experience in the financial and blockchain fields, and the Konomi project has also received support from the Web3 Foundation Grant. In December 2020, Jonathan Padilla, the head of Paypal blockchain strategy, officially joined the Konomi Network’s advisory board. Jonathan Padilla’s resources in the traditional financial field will be a powerful help for Konomi to gain support from huge Internet users and seize the ecological position of the Web3.0 lending market.
Open up a blue ocean of Web3.0 financial market value
In order to allow early participants to obtain corresponding returns, Konomi’s native token KONO not only has the right to govern the community, but the holders can also participate in pledge lending to obtain platform fee sharing. There is also a clear repurchase mechanism for KONO in its economic model design, which is also clearly different from Compound. With more and more participants, I believe that the price of KONO will also be higher and higher.
At present, Konomi’s multi-asset support, automatic market making, lending and other components have been basically completed. After the governance and oracle components are completed one after another, the official product is expected to be launched before the Polkadot parachain starts in the first quarter of 2021.
It is worth mentioning that participating in the Polkadot Parachain auction requires the project party to pledge DOT, and related projects will also provide certain market incentives to bid for community DOT holders. Konomi will provide corresponding services for this, which can not only allow other projects that need to raise DOT to find target traffic, but also allow users to select supported projects and obtain revenue by mortgage DOT. Konomi will also gain a large number of seed users, laying the foundation for future development.
Financial activities are like the natural water cycle, which “nourishes” all industries and promotes their prosperity. In the irreversible development process from Web2.0 to Web3.0, seizing Konomi will also seize the investment opportunities in the Web3.0 financial blue ocean market.
