How does DeFi break through the expansion dilemma? Binance’s newly launched Binance Smart Chain has delivered its own answer sheet in terms of reducing handling fees, improving performance, and being developer friendly.
Written by: Folder Zhang
There is no doubt that DeFi has become the hottest term in the blockchain industry. In addition to token prices, people who practice it are more concerned with indicators such as lock-up volume, interest rate returns, and transaction depth. With the ebb and flow of various liquid mining projects, people are increasingly aware that bottlenecks such as Ethereum gas price, transaction fees, and confirmation time have severely restricted the further expansion of DeFi. In response to the weakness of Ethereum, a large number of public chains have taken the initiative to attack, and the giant Binance in the CeFi field has actually already had a layout. Based on its understanding and experience in the field of encrypted asset trading, Binance’s latest Binance Smart Chain has delivered its own answers in terms of reducing handling fees, improving performance, and being developer friendly.
DeFi’s popular appearance and Ethereum tights
2020 is a year of rapid development and rapid expansion of decentralized finance (DeFi). From the beginning of the year to the present, all DeFi data indicators have experienced a steep climb.
- The total lock-up amount increased from 700 million US dollars to nearly 10 billion US dollars
- The cumulative daily trading volume of decentralized exchanges increased from USD 5 million to USD 1.6 billion
- Total borrowings ranged from US$150 million to US$1.4 billion
DeFi total lock-up amount, data source: DeBank, data interception time September 5
With the continuous influx of funds and users, DeFi has become the undisputed most popular blockchain vertical field. With the emergence of new projects and the launch of various innovations, cryptocurrency enthusiasts are constantly exploring new possibilities for DeFi, and at the same time looking for the next direction of DeFi evolution. An important idea is to consider the limitations of current DeFi.
An obvious fact is that the current mainstream DeFi applications are all running on the Ethereum network, and the unparalleled DeFi movement seems to be just the carnival of Ethereum, while other DApp platforms are quite unstoppable. The opposite of the coin is that the transfer fee of Ethereum has increased exponentially with the prosperity of DeFi. The Gas Price has been dozens of times that of the beginning of the year. According to the Gas price of 276Gwei on September 5 and the price of ETH of 350 USD, users need to pay at least 2 USD handling fee for each transfer on Ethereum:
276*21000=0.0058ETH
Note: Handling fee = Gas limit (limit) * Gas Price (price), Ethereum stipulates that the number of Gas per transfer is at least 21,000. If it involves complex smart contract interactions, the required handling fee is higher, and the handling fee for a single transaction for participating in liquidity mining recently may reach hundreds of dollars.
Ethereum network average transaction fee, data source: EtherScan
In addition, scalability and transaction speed are also important obstacles to Ethereum. In view of this, Ethereum is temporarily unable to carry DeFi’s vision of inclusive finance, so what should we do?
One path is to start from Ethereum itself. It is obviously too long to expect a higher-performance Ethereum 2.0 (according to the Ethereum 2.0 roadmap, it will take at least 2 years for Ethereum 2.0 to support smart contracts). A more feasible short-term solution is through Rollup, etc. The Layer 2 solution has been expanded, but there are no successful cases yet.
Another path is for DeFi to step out of Ethereum and open up new areas on other public chain platforms. In the case where Ethereum cannot carry the explosive growth of DeFi, overflow will be inevitable. At present, old public chains such as Tron and EOS are actively deploying DeFi, and Binance Smart Chain is also one of the many public chains that are actively entering DeFi.
Binance Smart Chain (BSC): supports smart contracts and is fully compatible with Ethereum
Binance Smart Chain is a new public chain launched by Binance under the DeFi wave, focusing on an open financial ecosystem.
In April 2019, Binance launched Binance Chain, focusing on decentralized transactions. With excellent performance experience and extensive asset support, Binance DEX once occupied the top spot in the trading volume of decentralized exchanges. But since the beginning of this year, the development of blockchain has quickly entered the stage of DApp innovation based on smart contracts, and DeFi has ushered in an explosion. Binance Chain is not friendly to smart contract support and cannot provide infrastructure for DeFi. Binance Smart Chain came into being in this context.
In April of this year, Binance released the Binance Smart Chain white paper, which quickly switched the track, after 5 months of construction. Binance Smart Chain was officially launched on September 1. Binance Smart Chain is based on the new PoSA (Proof of Staked Authority) consensus algorithm, which achieves programmable scalability and is compatible with the existing Ethereum ecosystem. It also supports cross-chain assets. In summary, there are four characteristics:
- Independent operation: Binance Smart Chain is a chain that runs parallel to Binance Chain, and the two interact through a cross-chain mechanism.
- Compatible with Ethereum EVM: This move can greatly reduce the entry barrier for developers, and Ethereum ecological projects and developers can easily transition to the Binance ecosystem;
- Support cross-chain interoperability: the circulation of assets is not limited to individual public chains;
- Distributed on-chain governance: validators jointly maintain consensus on the chain and increase community participation through the PoSA mechanism.
In general, the core feature of Binance Smart Chain is to support smart contracts and be fully compatible with Ethereum. In theory, everything that can be done on Ethereum can be done on the Binance Smart Chain, and Binance Smart Chain has made key improvements to the procedures and performance that are closely related to the development of DeFi, which provides a good way for the establishment and migration of DeFi protocols. Infrastructure and tools.
So, why is the newly born Binance Smart Chain called Ethereum, competing with the predecessors of the public chain?
Competitive advantages of Binance Smart Chain
Low transaction fees
High handling fees are currently the biggest constraint on the development of Ethereum’s DeFi, and a few dollars in fuel costs will shut out a large number of high-frequency and low-cost services. The Binance Smart Chain focused on improving the handling fee mechanism. The real transaction fee is only about 1 cent, which greatly reduces the user’s threshold for use, which will stimulate a large number of market participants to enter DeFi.
Developer friendly
Binance Smart Chain is a fully compatible EVM (Ethereum Virtual Machine) blockchain, and can support all current Ethereum tools, including Metamask, Remix, Truffle, etc. As we all know, Ethereum is the origin of the current development and growth of DeFi. When Ethereum cannot satisfy the expansion of the DeFi ecosystem, it is inevitable that DeFi will step out of Ethereum. Project migration requires cost. By being compatible with Ethereum EVM, Binance Smart Chain greatly reduces the migration cost of developers, thus opening the door to Ethereum DeFi builders.
high performance
To realize the dream of inclusive finance, DeFi must have the performance that matches the centralized network. Binance Smart Chain adopts a brand-new Proof of Stake Authority (PoSA), which combines the characteristics of the Delegated Proof of Stake (DPoS) and Proof of Authority (PoA) mechanism. Through 21 verification nodes on the network, one can be generated every 3 seconds. Block, TPS can reach thousands.
Economic bandwidth
Economic bandwidth is the fuel for DeFi applications and plays the role of the ecological internal settlement layer. The wider the economic bandwidth of a network, the stronger its financial application capabilities, and the higher the security of the network in general. Economic bandwidth comes from the overall value of various assets on the network.
The total market value of the Ethereum ecosystem (including ETH and ERC20 tokens) exceeds US$50 billion, which means that Ethereum DeFi can carry a market size of tens of billions of dollars. In the current industry, this is beyond the reach of other public chains outside of Ethereum. of.
Binance Smart Chain uses Binance Coin (BNB) as its native asset. The economic bandwidth provided by BNB’s $2.2 billion market capitalization has an advantage that cannot be ignored in a crowd of competing public chains.
Pan-asset support
The diversification of assets requires DeFi to fully support pan-assets in order to truly serve the public and penetrate into the public’s economic life.
There are more than 110 projects on Binance Chain. These projects have been running for some time, and they will all be seamlessly connected to Binance Smart Chain. The value of these tokens will also be transferred to the Binance Smart Chain and quickly integrated into the rich product functions of DeFi, forming a combined effect of value circulation.
At the same time, Binance, as the industry’s leading trading platform, has abundant token support and asset reserves. These can all enter the Binance Smart Chain through cross-chain and other methods to meet the diverse financial needs of users.
Assets cross-chain circulation
The value and information circulation between public chains has always been the focus of the blockchain industry. As a protocol with asset circulation as its core, DeFi needs to break through the island effect between public chains. In order to allow users and developers to transfer assets between different blockchains and achieve more selectivity and flexibility, Binance Chain and Binance Smart Chain integrate multiple cross-chain infrastructures:
- BEP3 standard: EVM compatible networks such as Binance Chain and Ethereum can achieve atomic exchange through BEP3. Kava has begun to use the BEP3 standard to implement cross-chain atomic swaps on the Binance Chain.
- Binance Chain and Binance Smart Chain contain built-in cross-chain communication and transfer protocols. BEP2 tokens can be seamlessly transferred between the two networks in both directions, realizing interoperability without trusting a third party.
Binance DeFi ecological cross-chain facility
- Token Canal: This function will run on the Binance Smart Chain, and use the Binance Exchange as a bridge to bridge the BTC, ETH and other tokens supported by the exchange to the Binance Smart Chain. At present, BNB and BTC can be directly withdrawn from the main site to the Binance Smart Chain.
Zhang Xiaoguang, the person in charge of Binance Smart Chain, said, “Binance Smart Chain hopes to provide more support for DeFi cross-chain collaboration and facilitate project migration. And through Binance’s centralized custody, it bridges many currencies. Rich products and liquidity lay a solid foundation in the future.”
Constantly enriching the Binance Smart Chain ecosystem
Since the launch of Binance Smart Chain, the construction of the DeFi ecosystem has begun in full swing, and it is expected to complete the puzzle of basic DeFi components such as oracles and wallets in the short term.
- Oracles: Important infrastructure such as ChainLink and Band Protocol have been integrated into Binance Smart Chain.
- Stable currency: The US dollar stable currency BUSD issued by Binance has a circulating market value of nearly 200 million U.S. dollars, and 31 million BUSD has been issued on the Binance smart chain recently.
- Wallet: Binance Eco has more than 30 wallet providers, and Trust Wallet, as the official wallet of Binance Eco, has already supported Binance Smart Chain for the first time.
While the basic components and tools continue to improve, Binance Smart Chain has also gathered a number of important partners in the DeFi field, covering the track of lending, derivatives, transactions, and aggregators. In addition, a number of projects plan to build businesses on Binance Smart Chain. The following is a brief overview of representative projects with characteristics.
Spartan Protocol
Spartan Protocol can be said to be the mapped version of Synthetix on Binance Smart Chain. The project is supported by Binance and the token holders of 30 existing Binance Chain projects. SPARTA tokens will be used as liquid assets in the capital pool and can also be used as collateral to synthesize tokens. Ensure that it has high liquidity and can safely liquidate unsafe positions in real time.
DODO
DODO is a new automated market maker agreement that uses the PMM algorithm to imitate the human thought market maker, and concentrates funds near the middle market price, trying to solve the problems of Uniswap’s large slippage, low capital efficiency and free loss. Currently, DODO is carrying out liquidity incentives on Ethereum and is preparing to migrate to the Binance Smart Chain. As the IDO (First Decentralized Transaction Issuance) platform DODO co-founder Dai Shichao revealed, “DODO will be the first batch of support, but The migration will take some time, and it is estimated to be around September 15.”
MCDEX
MCDEX is a decentralized contract exchange based on perpetual contracts. It is currently based on Ethereum and plans to add support for Binance Smart Chain. MCDEX founder Liu Jie said, “A lot of tests are currently being done on Binance’s smart chain. MCDEX will be a multi-chain deployment structure. The public chain is relatively neutral to developers, just like a good app that can be deployed. You can also deploy to iOS on Android”.
Product innovation within Binance: liquidity mining
In addition to the Binance Smart Chain building a new DeFi ecosystem from the outside, Binance also integrates into the DeFi wave from the inside through new products. Binance has launched three new mining products to help users participate in liquid mining more conveniently.
New coin mining
“New coin mining” is a new mode that combines IEO and mining. Users can use BNB, BUSD or other designated tokens to participate in the mining of new coins. The first project to be issued on the “New Coin Mining” is the decentralized financial platform Bella Protocol token BEL, with a total of 5 million BELs released in 30 antennas into three mining pools: BNB, BUSD and ARPA.
Binance mining
“Binance Mining” is based on the liquidity pool model of automated market makers. Users can quickly realize currency exchange in “Binance Mining”, and can also become a liquidity provider by injecting funds, enjoying commission dividends and current interest income. “Binance Mining” has opened the trading of stable coins BUSD, USDT and DAI.
DeFi mining
DeFi mining is an aggregate mining service. Binance participates in the liquidity incentives of specific DeFi projects through the agent of user assets, realizes income acquisition and distribution for users, and helps users participate in DeFi products with one click.
Compared with users participating in mining in DeFi products, Binance’s aggregate mining service has the following advantages:
- Simple and easy to use: Participating in DeFi mining does not require complicated operations such as managing private keys, obtaining resources, and running transactions. The one-stop service allows users to get rich online rewards without having to have an on-chain wallet.
- Asset security: Select the best DeFi projects in the industry, and monitor the DeFi system in real time during product operation to reduce project risks.
- Higher returns: DeFi mining helps users to amortize high transaction fees through aggregation, thereby obtaining higher returns.
The above three products are still in centralized operation, but with the stable operation and ecological prosperity of Binance Smart Chain, migration to the chain is just around the corner.
Binance’s DeFi vision
With the help of liquidity incentives, the transaction volume of decentralized exchanges has grown rapidly and has begun to catch up with centralized exchanges. As the leader of DeFi trading, Uniswap has a daily trading volume of hundreds of millions of dollars, surpassing Coinbase, a top-tier US exchange. DeFi is launching a challenge to CeFi. DeFi and CeFi, conceptually, seem to have to stand on opposite sides. So, is Binance’s aggressive foray into DeFi shooting itself in the foot?
In fact, DeFi and CeFi are not contradictory. The fact is that we have seen a large number of CeFi actively deploying DeFi and joining the ascendant decentralized financial feast.
Ryan Sean Adams, a veteran cryptocurrency investor and Ethereum advocate, has deeply discussed the trend of CeFi and DeFi integration. He mentioned a “protocol sinking” theory, which believes that DeFi protocols are reliable and neutral. Compared with centralized protocols, they will sink to the bottom of the cryptocurrency stack, and CeFi will act as an application layer to interact with users. Interactive role.
If Ryan’s prediction is fulfilled, Binance can also use the relationship established with the majority of crypto trading users in the past to become a bridge from CeFi to DeFi, especially through the Binance smart chain, occupying the bottom and application layers of the cryptocurrency stack. Perhaps, it is precisely because of the fear of being overtaken by unfamiliar things that Binance will actively join the new DeFi species when it is just emerging. Rather than confrontation, it is better to join this new trend of the times and become the next wave of trendsetters.
Changpeng Zhao, the founder of Binance, once said, “The greatest significance of blockchain is to create the free circulation of value.” DeFi is the proof of this value.
