Q&A: What is the DeFi sector getting wrong right now?

DeFi has grown exceedingly fast — and when this happens, it’s inevitable that teething problems will emerge.

Here, we talk to Piers Ridyard, the CEO of Radix. He tells us what his company is doing to address some of the main pain points in this sector — and the challenges that consumers and developers currently face.

1. Hello! Can you tell us about Radix?

Absolutely. Radix is the first public decentralized network built specifically to serve decentralized finance (DeFi). This was necessary because with DeFi on Ethereum, building sucks — there have been over $285 million in hacks in the last two years alone. The networks are slow and inefficient — gas fees keep hitting record highs and costing the users millions of dollars, and the growth of the space is being fundamentally held back by network congestion.

We like to say Radix is “layer-one DeFi done right,” this is because Radix is the only decentralized network where developers will be able to build quickly without the constant threat of exploits and hacks, where every improvement will get rewarded, and where scale will never be a bottleneck.

Radix is building three huge improvements to DeFi technology that will be released over the next 3 years:

1. 10x DeFi developer productivity. Right now, DeFi developers spend up to 90% of their time securing their code rather than building functionality. Despite that there have still been over $285m of DeFi hacks, bugs and exploits to date on Ethereum.

Solidity (the Ethereum programming language) is a big part of the problem. Radix is building a purpose-built DeFi programming environment that will enable fast AND secure development, giving DeFi developers more time to focus on innovation rather than security.

Scrypto is scheduled to be released in Q4 2021.

2. 100x DeFi execution efficiency. The Ethereum Virtual Machine (EVM) is where all DeFi smart contract logic is executed and it is SLOW. So slow in fact that it is one of the biggest bottlenecks of DeFi today.

The Radix Engine is designed to change the game by replacing the EVM for a lean, mean, state-executing machine. You can think of it like upgrading a computer CPU from one built 20 years ago to Apple’s best new processors. Incredibly fast, more energy efficient, and able to do a whole heap of stuff in parallel.

The Radix Engine v1 is released with the first Radix mainnet launch on July 28 2021. The Radix Engine v2 is scheduled to be released in 2022.

3. 1000x DeFi scalability. DeFi on Ethereum is expensive to use. This is because it is not scalable, but popular, which creates a huge amount of congestion. What many underestimate is the sheer magnitude of transactions these systems will have to deal with. To replace the global financial system will require processing of millions of transactions per second, which is well beyond the capabilities of platforms like Ethereum 2.0 or Solana, and also completely beyond the capabilities of layer-two scaling solutions.

Radix built their consensus algorithm, Cerberus, to deliver something entirely unique to the blockchain industry — linearly scalable atomic composability for DeFi. This means the long term Radix system should not only deliver millions of transactions per second, it should do so in an entirely DeFi native way.

The fully sharded, linearly scalable version of the Radix public network is scheduled for our Xi’an release in 2023.

These three foundation pieces of technology deliver our vision of a public permissionless infrastructure for the global financial system to run on.

2. Is the industry approaching scalability the right way?

The industry understands that scalability is a problem, but I think there is a common misunderstanding about how large the problem is. To illustrate, it is a little bit like trying to work out how scalable the internet needs to be by calculating how many phone calls are done around the world and using that as the approximate amount of data that the internet would need to handle.

The numbers aren’t even going to be close. But this is the problem, we currently know about phone calls (transactions for finance) in the global financial system, but we have only just started to understand what websites (smart contracts for DeFi) are going to require bandwidth wise.

The 2,000 transactions per second that Visa does is often quoted as the “gold standard” for scalability, forgetting that Alipay did 256,000 transactions per second on their busiest days in China, in 2017! And this is just one system. The total financial system today probably averages about 2m transactions per second just ticking over.

Add to this the fact that on DeFi everything is connected. One transaction on Uniswap can set off tens or even hundreds of other smart contract interactions, doing everything from updating oracle prices to running arbitrage bots or yield farming strategies. One transaction in DeFi is not one transaction, one transaction can end up triggering tens or even hundreds of smart contract logic executions.

So, if the global financial system is doing two million transactions per second now, moving that to DeFi might require 20 million to 200 million transactions per second, that is probably being conservative.

Radix is the only public ledger system I know of that has any kind of roadmap for delivering this kind of scale. Ethereum 2.0 isn’t close. Solana isn’t close. Layer two isn’t close. Everything else in the space is magnitudes off where we need to be to achieve public ledger systems that can execute at the scale the world actually needs to fully digitize the financial system as we know it and allow an entirely new breed of innovation.

3. What’s the alternative to Solidity?

Okay, so programming languages are something that a lot of people have a lot of really passionate views about! Solidity was based on JavaScript. This was chosen because it is the world’s most popular programming language so they wanted it to be easy to pick up.

However, it isn’t actually JavaScript. It is a weird monster that has a lot of the bad points (not being strongly typed, being difficult to reason about the execution of) plus a bunch of extra problems just for Solidity (tricky reentrancy issues being the one that continually hurts).

Ethereum didn’t know what they were building the language for, could be anything they reasoned. Turned out they were building it for finance, they just didn’t know, then DeFi came along.

Now — if you asked the CTO at a neobank (like Monzo, or Revolut or N26) to build their core system in JavaScript, they would beat you to death with a baseball bat. No sane developer would choose, willingly, to build a critical financial application in JavaScript. Yet here we are as an industry.

We didn’t so much as get inspired to change from Solidity, we just started at the obvious place: if we know that the killer application for public decentralized ledgers is DeFi, what should the language that people use to build these world changing financial applications look like?

After that, it was pretty obvious that Soldity had to go.

From there, we spent around a year interviewing leading DeFi developers and projects to find out what kind of language would work well. We were already working on our own language, Scrypto, but that customer learning period was critical to shaping it into something honed specifically for the right purpose: building decentralized finance applications.

Scrypto will be released at the end of this year, and we are keeping further details close to our chest for now. All I will say is that if you program Rust, you will feel right at home. If you don’t program Rust and want to build on Radix, go learn Rust. In fact, go learn it anyway, it’s an awesome language for lots of reasons.

Scrypto is not Rust, but we’ve taken a lot of inspiration from it, and we believe we have worked out a way of making it possible to build secure DeFi applications quickly and effectively. Hence our mantra: Build fast and don’t break things!

4. And what’s your answer to replacing the Ethereum Virtual Machine?

So, first of all — why does the Ethereum Virtual Machine need to be replaced? In simple terms, because it is bad for financial applications.

This is a complex issue, but it ultimately comes down to two things: speed and security. Many people don’t realize that the EVM is actually one of the biggest things slowing Ethereum down right now; so much so that it is one of the main reasons that Ethereum only does 15 transactions per second. For the more geeky, it is an IOPS problem, rather than a network latency issue.

Add to this the fact that the EVM is mostly Turing complete (except for the gas limit) you end up getting a system that becomes very hard to reason about ALL the states that a smart contract *might* get into (including error states). This issue sits right at the heart of many of the hacks and exploits that happen on Ethereum today.

So, how do you increase the performance and security of a network without doing anything to the consensus algorithm? Simple, you change the execution environment. Rather than inheriting all the issues of EVM, Radix created an incredibly fast, incredibly secure state execution machine we call the “Radix Engine.”

Unlike the EVM, Radix Engine is a programmable conditional Finite State Machine (FSM). This is the same technology that you find in mission critical code like nuclear power control systems, fly-by-wire avionics or high throughput matching engines of the type you might find in the Nasdaq stock exchange. Not only are these orders of magnitude more efficient, they are also MUCH more secure because the number of error states the system can get into in the first place is massively reduced.

The compiler takes the Scrypto language (which is expressive and flexible) and compiles down the Scrypto code that a developer on Radix wants to push to the Radix ledger into a set of Finite State Machines that run the specific smart contract logic the developer needs.

By the time the Radix Engine v2 is released, we expect this to 100x the execution efficiency of DeFi on Radix vs Ethereum even before we even start thinking about the extra scalability expected to be delivered by the Radix consensus system.

5. Any other tricks up your sleeve?

Absolutely. DeFi is pretty good at being entirely permissionless (which is a great thing!) — however, as the industry is evolving, there is an increasing number of circumstances where users need to complete AML/KYC checks. The problem is that currently, users need to do this on a platform-by-platform basis, often going through the same process every time they set up a new exchange account, participate in a token sale, or use a fiat ramp. It’s slow. It’s awkward. And it’s inefficient for both users and the platforms.

This is why when Radix was looking at building some compliance tools for ourselves, we saw an opportunity to provide a unified solution that can help the whole Radix ecosystem by providing a compliance solution for DApp builders who want it, while also enabling users of that DApp to connect frictionlessly.

This is why we made Instapass.io, a single sign-on solution for DeFi compliance. Once a user has provided KYC documents in Instapass and successfully passed the verification, in the future, they will have the choice to share this information with services that use Instapass. This avoids the need to repeat the same process with different platforms, services, and DApps that are integrated with Instapass.

The first service to use Instapass will be Instabridge.io, which will allow eXRD holders to swap between eXRD and XRD quickly and efficiently. Looking to the future, especially around the Babylon release of the Radix Public Network, Radix developers will have the option to integrate with Instapass to offer their users a low friction way to complete compliance requirements if needed.

6. Aren’t you worried that Solidity is too well established for Radix to succeed?

No. Programming languages are merely a tool to enable a developer to translate their ideas into actual working systems. Like any tool there are good tools and bad tools. The industry is stuck with Solidity because it was the first language available. That does not make it a good language, nor one that is easy to get competent in.

From our discussions with many of the leading DeFi projects on Ethereum, one of the key things that comes up a lot is the incredible shortage of talent in the space. With crypto projects offering HUGE salaries for Solidity experience, and with crypto being such a hot area of technology, why would this be the case? Solidity has been around for almost six years now.

The simple reason is that while it is easy to get started with Solidity, it is incredibly hard to master it. The learning curve plus the fundamental unattractiveness of the language as a development tool all contribute to a low amount of good Solidity developers.

There are a million examples of better tools coming into a space that everyone thought was mature (Webflow, Figma, Google, Facebook, OnePlus, WeWork, Pipedrive, and so on,) as well as many, many programming languages that have come in and replaced those that came before.

We think we are building something special for DeFi developers and we are super excited to be releasing it towards the end of this year. It certainly won’t be perfect, but we think it will be an order of magnitude better than what is here already, and that really matters for both new talent coming into the space, as well as the speed and security at which projects can build and innovate.

7. How are you going to encourage developers to embrace Radix?

It isn’t JUST technology that will win here. The entire DeFi space is built on the incredible work of a community of tens of thousands of developers who have contributed their time and intellect as opensource code, and to build the tools that make it possible to build a billion dollar DeFi application like Compound.

The problem is that on Ethereum the benefit of that code often doesn’t flow back to the community of developers that built it. This is because there is no easy way in DeFi to both contribute open source and charge for use of your software, unless you build an entire financial application like Aave or Uniswap.

On Radix this problem is being addressed by an on-ledger DeFi code library called the Blueprint catalogue. This is a library of ready-to-use DeFi code, like you would find on Github, but with a developer royalty system integrated into it, so that developers can not only contribute to the Radix ecosystem, they can also get rewarded for doing so every time a project integrates that developer’s code into a new decentralized financial application.

If this is combined with the ease of building the Blueprints in the first place due to the simplicity of the Scrypto programming language, we are confident that the Radix ecosystem will be able to reach feature parity with the Ethereum ecosystem pretty quickly.

8. What are the hurdles that stand in the way of achieving mainstream use?

Honestly, the biggest problem right now is still private key management. Private keys and seed phrases are still one of the most terrifying parts of crypto for most people and will continue to be a barrier to entry for some time to come.

There are some good indications of what might be the right direction with projects such as Argent creating a smart contract based social recovery system that does not require you to hide a piece of paper under your mattress and hope that you don’t lose it, but there is still a long way to go before it gets to the point that the everyday person will feel comfortable with being their own bank.

There are also a number of other additional issues including the difficulty of getting money into and out of crypto; the high gas fees; the difficulty of the user experience of things like Metamask; the lack of insurance that is provided by default to cover things like smart contract bugs (you have to go and find the right insurance, which can be tricky); and the huge difficulty the casual investor has in telling the difference between a good project and a scam.

These are all solvable, some of which Radix is working directly on solutions for, some of which will just be a matter of time and maturity, but I still think the old issue of key management is still holding the space back more than people realize!

9. What’s GoodFi?

Radix founded the not-for-profit GoodFi consortium with a clear mission: Get 100 million people to put at least $1 into DeFi by 2025. Members now include Aave, Sushiswap, mStable, Chainlink, Avalanche and many more.

We founded GoodFi because we believe, and our members share the belief, that we are in the early days of a massive technology revolution. In the early days of any revolution, one of the most important things is to educate and expand the audience. GoodFi was created to increase the number of people who have heard of DeFi, and give people a safe space to start their DeFi journey.

In the early days of the internet it was difficult to get people online. You needed to convince people to get the internet connected to their house. You often needed to convince people to buy a computer for the first time. You needed to then get them to learn to use a web browser. All these things we now take for granted but back then it was HARD.

Today, to get into DeFi, you need a web 3.0 wallet, some crypto currency and to choose your first DeFi app. These are all hard things, and one we all felt was worth investing money into making the newbie journey as easy as possible for!

10. Last but not least, can you share your goals for the next 12 months?

Olympia mainnet goes live on July 28, and our programming language is released at the end of this year.

Between those two dates, Instapass.io, Instabridge.io will continue to grow and develop, and we will continue to engage and grow our fantastic community.

Shout out to everyone in the Radix Telegram, Discord and Twitter community!

There is a lot to deliver this year, and we are just going to keep grinding and keep delivering.

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