There’s a lot of DeFi hype going around. Countless micro-cap projects sub 10 mil market cap. Just remember micro caps are high risk, high reward. Will they catch adoption? Sure big gains are possible, but… Let’s talk first about DeFi itself and what’s behind this hype.
Decentralized Finance DeFi is building a new financial system. It has been successful in loans, stable coins, remittances, and other main elements of the usual Centralized Financial system (CeFi). The benefit of using DeFi services is that you do not need to give up personal information or custody of your funds.
This greatly reduces the risk of your information being used without your consent or having your funds stolen. Anyone can store and invest their assets in the cryptocurrency securely and earn a higher return than from the traditional CeFi.
The market for DeFi is large, but the majority of existing projects are still based on the Ethereum blockchain. That’s great unless there comes only one solely “but”. Ethereum data transactions and the results of smart contracts (as well as many other popular DeFi platforms) can be publicly copied and processed. This data is available to all network participants.
Having received such data, you can find out how much a certain account received a loan and at what interest rate. This architecture is bad for the interoperability of assets also. If for some reason a smart contract is not popular, the investment funds participating in it lose their reputation.
This is contrary to all the principles that private capital stands for. Confidentiality is the core value of the financial system. Otherwise, why does one need such a decentralized financial system?
“DeFi on Ethereum is hurtling at light speed into a world of highly-regulated, zero-privacy, pseudo-custodial finance that will easily be absorbed by existing financial institutions and embraced by paranoid governments.” Chris Blec link.
Check out FATF’s latest thinking where they suggest mandating crypto-asset activity to VASPs or Financial Institutions, paragraph 54 link.
Does this mean that DeFi has no future? Definitely not. There are a few DeFi projects with privacy by default that improve upon current existing DeFi models and eliminate the limitations that the current existing DeFi systems face.
1/ DEFIS project. Cryptocurrency XGM
DEFIS is a new PoW blockchain (Equihash 150,5 modification, ASIC/FPGA resistance) that’s specifically designed to improve DeFi by solving existing limitations. Using DEFIS you can borrow money, earn interest, exchange crypto, and create your own cryptocurrencies.
As previously mentioned, smart contract privacy is lacking in current DeFi applications. That’s why DEFIS is set up so the terms of any smart contract are only viewable to the parties involved in the contract. Other blockchains use a scripting language to specify how coins can be spent. The problem with this is that it results in a lot of data that is public and can’t be compressed. That’s why DEFIS’ s based on “Scriptless scripts” technology – which enables enforcement and execution to occur off-chain, significantly enhancing scalability.
Furthermore, the DEFIS blockchain does not store transactions or addresses, it is fundamentally private. Privacy is achieved using a combination of Confidential transactions (CT), Confidential Assetchains, CoinJoin, Bulletproof, Cut-through, and Blinding factors that encrypt all inputs and outputs.
2/ Conceal project. Cryptocurrency CCX
Conceal Network is a secure peer-to-peer privacy framework empowering individuals and organizations to anonymously communicate and interact financially in a decentralized and censorship-resistant environment.
Conceal Network powers the $CCX cryptocurrency which is an open-source, privacy-protected digital cash system that mimics physical cash; nobody knows where you store or spend your CCX.
Conceal is a variant of the original Cryptonight mining algorithm designed to achieve maximum PoW hash function for egalitarian CPU & GPU mining and ASIC/FPGA resistance. Conceal. The network automatically has privacy features applied to all transactions. You never have to request and then verify whether other people have enabled a privacy mechanism when sending/receiving funds or messages because privacy is always automatically applied to all transactions at the protocol level.
Furthermore, the always-on nature of Conceal’s privacy features means that even if the majority of Conceal users are not privacy-oriented, they will still automatically participate.
3/ Ergo project. Cryptocurrency ERG
Ergo a POW cryptocurrency aimed to develop and revolutionize blockchain technology. The Ergo Platform aims to develop and provide a platform for financial contracts on the blockchain. The Ergo Platform consists of the cryptocurrency Ergo, and ErgoScript, a scripting language used to develop contracts onto the Ergo blockchain.
ErgoScript is a scripting language designed by the Ergo development team. This programming language provides numerous benefits over the original Bitcoin Script. ErgoScript provides more functionality and flexibility to developers to develop applications onto of the Ergo ecosystem. Using ErgoScript, developers can specify under what conditions a coin can be used, including who and when can use it. This opens ErgoScript to be used for a myriad of applications.
With Ergo you can create highly-secure dApps & smart contracts, and take full advantage of our privacy tools.
The more these projects unfold, the greater the use case for privacy instruments in DeFi, and all self-banked solutions become. Real Defi should have privacy. It will be similar to how the internet moved from HTTP to HTTPS over time.