Can DeFi dApps Compete with the Existing Financial Infrastructure?

Decentralized finance dApps (DeFi) are, without a doubt, the way we can see real progress being made in regard to the general adoption of cryptocurrencies. As we know them now, cryptocurrencies are still climbing the adoption curve.

They are more akin to pieces of gold rather than the U.S. dollar. But one could argue that we would never have gotten to this stage, complexity, and simplicity of the U.S. dollar (both in regard to the physical and digital versions) without first working our way through trading pieces of gold and other metals for goods. 

If DeFi dApps are to be the future of cryptocurrencies, especially in regard to their general adoption, they have major boots to fill in order to replace the existing systems. The two major questions that need to be answered are: where are DeFi dApps now, and more importantly, what do they need to succeed?

Popular DeFi dApps and their traditional counterparts

You can’t revolutionize a space unless you can do whatever the leaders in that space are already doing, but better. Whether better means faster, or cheaper, or fairer is up to the specific application and industry, but when it comes to cryptocurrencies vs. fiat all three of those factors apply. Therefore, a better fiat, in this sense, is one that's faster, cheaper, and fairer for all users.

Source: stateofthedapps.com

There are many DeFi dApps on the market, but in order to get a feel for the industry as a whole, we picked three major examples built on the most popular protocols: Ethereum’s Dai, EOS’ Rex, and NEO’s Nash. Between the three of them we have a stablecoin, a resource exchange, and a decentralized exchange respectively. All of these companies are trying to approach the world of blockchains in their own unique way while simultaneously solving the common problems that users face.

Ethereum’s Dai intends to exist as a stablecoin where users can always seek safe haven. This stablecoin is designed to be self regulating, offering both incentives and decentives when the price needs to be raised, or lowered, to maintain its ideal price point. Dai can be freely traded like any other ERC20 token, which makes it easy to use and store.

Rex and Nash, although they are both DeFi dApps and have their uses, compete for different purposes. As mentioned above, Rex is all about trading computational resources (like RAM and CPU power) while Nash is focused on operating a completely decentralized exchange. They both have their uses and are both trying to demonstrate the correct way to scale for greater user numbers.

Unfortunately, all three of these major DeFi dApps have their own sets of issues.

Dai is arguable the best, truly decentralized example in this collection of DeFi dapps, but it falls short when it comes to transactions per second (TPS). Its network can easily reach its limits with just a few thousand users.

Rex is built on EOS, which has a history of reversing transactions and Nash, built on NEO, struggles with the same centralization problems. These networks opted to centralize several of their nodes to help speed up their development.

This goes against the point of DeFi dApps, which is disappointing since all of these projects claim decent TPS numbers.

At the end of the day, none of these projects even come close to handling the load of daily transactions that a major traditional network, like Visa, processes. Sure, they have plans for sharding and chain development, but when it comes to the crypto world it is better to show instead of tell, especially when it comes to fundamental features like TPS.

What traits does a DeFi dApp need to truly succeed?

Since we know what the modern DeFi dApps struggle with, it may be helpful to make a comprehensive list of what a DeFi dApp needs to function up to current standards.

This list is based on what we currently know about the market and uses some future speculation of technologies that are being developed, but when all’s said and done, it focuses mostly on what is possible today.

The main requirements can be broken down into three categories:

1. Blockchain capacity
2. Developer friendly
3. Supporting community

Blockchain technology, and its continual advancement, obviously plays a massive role in the future of DeFi dApps. The main aspects of blockchains that are pertinent here are speed and scalability.

These two parts of a blockchain combine together to help decide the overall transactions per second that a blockchain can handle. TPS can be increased by either adding more transactions per block, reducing the time between blocks, or both.

Of course, tons of other factors need to be taken into consideration here: type of blockchain consensus, fees, the size of individual transactions, etc. Only by finding an efficient combination of these that allows for high TPS and negligible costs per transaction can blockchains ever replace existing systems.

Development is the next key to creating a successful DeFi dApp, specifically in regards to what the developing environment is like. There are many arguments to be levied against turing complete smart contracts, and other development-specific problems, such as static vs. dynamic typing, lazy evaluation, etc., and all of them should be thoroughly thought through.

Not all programming languages are created equal, and because of this, some languages (and, subsequently, some blockchains) are better suited to handle speed and scalability increases.

Source: xkcd.com

Finally, and perhaps the most important factor when helping a DeFi dApp succeed, there is community. Everyone needs support, and it helps when developers have a way to seek information when they are stuck.

It helps to have fresh ideas consistently injected into your work, which is what makes developer communities integral to solving problems. When isolated and working on a project they can get stuck, but when a large team, or community, comes together to push a project forward success is far, far more likely.

Upcoming DeFi dApps may be the solution

Perhaps building something new instead of trying to improve on something old (whether through a fork or a redesign) is the best way to go about creating sufficiently fast DeFi dApps.

There are many projects that are trying this route by creating their own blockchains, adhering to the three key categories we laid out above, and showing instead of telling what their tech can do.

The main project that comes to mind is Waves. This company launched itself into the crypto world a few years ago as a DeFi platform and has been sprinting ever since, consistently putting out solid contributions like their own programming language, secure wallets, and an ever-improving blockchain to build it all from.

By breaking Waves down we can look at what specifically makes them a potential contender to lead the surge of DeFi dApps in the coming years.

Aside from Waves’ existing blockchain (which runs on Leased-Proof-of-Stake), their simple programming language Ride and their strong community of developers (with access to an even stronger suite of tools) – Waves has already shown what they can do with DeFi dApps. To name a few, we have:

• Their flagship – the Waves DEX which is the core of their operations, helping them grow and integrate more and more users thanks to the expandability of their consensus protocols.
• Their algorithmic price stabilizing protocols – Neutrino (USD-N) which uses the existing Waves token as collateral to keep their stable coin USD-N at a consistent price, all within a decentralized network.
• Their DAO sandbox for grants – Ventuary DAO which operates using the will of voters to assign grant money for new and upcoming projects in the Waves ecosystem.

All of these things together make for a fantastic environment that can handle the transactional load akin to what Visa processes, and more. Waves has demonstrated that their products are secure and easy to work with, and already have their DeFi dApp boots on the ground. 

But Waves isn’t the only contender here, they are just the first to seriously show up with an MVP. Polkadot is already building a super fast relay chain to connect other blockchains, but unfortunately their tech is still experimental.

Once they are up and running they’ll potentially be a great resource for linking DeFi dApps together.

Other contenders, like Bitcoin’s Lightning Network, has the theoretical capability to increase the TPS of Bitcoin phenomenally, if only it could grow its developer community and actually make progress.

This would be fantastic, of course, but don’t hold your breath. GoChain could be another sidechain solution like the Lightning Network, with tons of promise upfront, but until we start seeing actual progress there is no reason to get excited.

Source: dilbert.com

Understanding our place in progress

It would be great if more developers were using Waves, really putting pressure on their networks and forcing them to stress test with more dApps, more users, and more TPS than ever before.

But until we see this stress testing we won’t know exactly how well their network would sustain the load of a sudden influx of millions of users. 

Are we currently at a place where any network could spontaneously take over for Visa’s servers and sustain the load? Absolutely not, but with every new player entering the field we get one step closer. Afterall, the U.S. dollar wasn’t created overnight.