Four New DeFi Products That Promise To Reboot The Decentralized Financial Economy
Decentralized finance has seen a lot of attrition this year with liquidity being sucked out of the market at an unprecedented rate. Meanwhile, a number of notable projects in the space have faltered, costing investors millions of dollars.
Having grown so rapidly in 2021 it was perhaps expected that the DeFi market would suffer a pullback this year, amid what is turning out to be one of the most brutal crypto winters on record. Yet for all of the fortunes lost this year, believers in DeFi and its potential to “bank the unbanked” by providing anyone with access to alternative financial services remain undeterred by recent events.
DeFi’s biggest selling point is that it cuts out the middleman, instead relying on blockchain to facilitate transactions between two individuals in a way that’s as safe and secure as any traditional financial infrastructure platform. But whereas there are considerable barriers to entry with regular banks, such as costly fees and the need for identification, DeFi is accessible by anyone without ID, with the only requirement being to own a smartphone and be connected to the internet. Moreover, DeFi functions 24/7 in any location, its transactions are processed in seconds, and it’s fully automated, meaning the costs are low.
It’s because of these characteristics that the crypto faithful continues to see a bright future for DeFi, regardless of the current economic downturn. Although 2022 has been a painful year, with the demise of platforms such as Celsius and the collapse of the Terra blockchain ecosystem some of the worst moments, it has also given rise to a new generation of projects that continue to further the goals and vision of DeFi.
HyperDex
The launch of the HyperDex platform earlier this year could one day be seen as a turning point for the DeFi space, which in the early days was wrought with complexity. One of the major complaints around DeFi is that investing in the space requires a nuanced understanding of the mechanics of financial markets and concepts such as leverage, spot trading and more.
For those who are unfamiliar with such terms, the prospect of investing in DeFi can be daunting. While most DeFi platforms advertise their high potential APYs to be earned, it takes a lot of smarts to understand the risk of investing in them, and horror stories of novice investors losing thousands of dollars can be found plastered all over the web.
This is why HyperDex’s attempt to simplify DeFi investing for newcomers is such a commendable and potentially game-changing prospect. Launched earlier this year, HyperDex helps investors to get their heads around the multitudes of possible investment strategies they can pursue when dallying in this high-risk asset class, while understanding the risk they’re taking on.
That’s because HyperDEX has eliminated DeFi investing headaches by breaking it down into just three kinds of investment strategy, or what it calls “Cubes”, with increasing levels of risk.
Novices would do well to start off their investments with one of HyperDEX’s Fixed Income cubes, which are said to earn a guaranteed, albeit moderate interest from their initial investment. Once they’re more accustomed to using the platform, investors can then take on greater risk with HyperDEX’s Algo Trading Cubes, which relies on trading algorithms to try and generate higher profits. Alternatively, they can opt for the high risk Race Trading Cubes, which provide the biggest returns through speculation on the price of a range of crypto assets.
Along with the basics, HyperDEX offers what it calls “HyperCubes”, where users can simultaneously invest HYP tokens (the native token of HyperDEX) as well as their main investment. So if a user deposits 100 USDC into a Fixed Income Cube, they can deposit an equivalent amount of HYP tokens into a Fixed Income HyperCube, earning an additional 20% return. The Algo Trading HyperCube and Race Trading HyperCube meanwhile, provide extra rewards in HYP tokens that are equivalent to the investor’s return on the standard cube. The idea is not only to drive parallel profits, but also increase demand for HYP, something that will hopefully increase the value of that token. Don’t forget that while the returns are paid in HYP, the real value of that investment reward is tied to the value of HYP itself - so if the token’s value increases vis-a-vie the U.S. dollar, the rewards will be even higher.
Perhaps the most useful thing about HyperDEX is it lets investors know exactly what they’re getting into, so they can decide for themselves if the potential rewards are worth the risk they’re taking on. That should help to prevent scenarios on other platforms where new investors only see the potentially high APY but fail to understand there’s a significant chance they could lose it all.
Thetanuts Stronghold
Sticking with the idea of making DeFi investing easier to understand, we’re expecting big things from the launch of Thetanuts Stronghold trading product.
Announced by Thetanuts Finance, Thetanuts Stronghold is an index vault that’s similar to the S&P 500 in traditional stock trading, bundling non-inflationary returns and thoughtful risk management into a single, user-friendly product.
The idea is to simplify the process of options trading in DeFi, and to that end Thetanuts Stronghold offers similar functionality to the S&P 500, allowing users to avoid headaches by betting on the overall performance of the market. Users can invest in a range of option vault indexes created by Thetanuts’ market analysts and with any luck they’ll be able to generate organic yield from option selling benchmarked against major ecosystem tokens.
With Thetanuts Stronghold, user’s staked assets are deployed into various automated options selling strategies through the use of smart contracts. They can then earn yield from premiums, as opposed to the inflationary token rewards most other DeFi protocols use.
Once the investor deposits their assets, they receive a yield bearing token that Thetanuts said will generate superior returns through a strategy that involves selling options across the curve. At the same time, investors minimize their risk by diversifying their portfolio across multiple assets. Thetanuts Stronghold uses algorithms to determine the strike price and expiration of each strategy to maximize their risk-adjusted yields.
From the investor’s perspective, Thetanuts Stronghold makes options trading much more accessible by eliminating the headaches associated with liquidity lock, choice paralysis and concentrated risk. Instead, they have a much simpler choice of electing which index to invest in, with algorithms doing most of the actual work. They benefit from being able to move into and out of a position at any time, Thetanuts said. Everything is managed via a user-friendly interface that makes it easy to discover the available assets for yield generation opportunities.
Thetanuts Stronghold currently offers USDC index vaults on Ethereum, Binance, Avalanche, Polygon and Fantom, with plans to introduce additional index vaults and alternative chains in future.
Syscoin Rollux
Another potentially game-changing product launch came with Syscoin’s introduction of a layer-2 rollup suite called Syscoin Rollux, enabling both optimistic (now) and zero-knowledge (later) rollups for Ethereum blockchain transactions.
This is a big deal because it means Syscoin is bringing secure and almost instantaneous transactions to Ethereum, which remains the top blockchain for DeFi products.
Syscoin is one of the oldest projects in the DeFi space. It’s the creator of a blockchain infrastructure platform that’s merge-mined with Bitcoin, meaning it benefits from the security of the world’s most decentralized network. At the same time, Syscoin is also compatible with Ethereum, meaning developers can use familiar tools like Remix and Truffle to build applications atop of it. Syscoin’s Layer-2 scaling solution inherits the security of its underlying blockchain (Syscoin, which is tied to Bitcoin) while ensuring transactions take place away from the main Ethereum chain. This means they can be processed faster and with lower fees.
While there are many methods for facilitating layer-2 blockchain transactions, few hold as much promise as rollups, which work by bundling large numbers of transactions into just one, which is submitted to the Ethereum blockchain alone.
Optimistic rollups are more mature than ZK-rollups, hence they’re being introduced with Syscoin’s solution first.
“There has recently been renewed interest in the security and scalability aspects of Optimistic rollups that have forced us to take another look at this technology even though we strongly believe in ZK-Rollups,” said Syscoin Lead Developer Jagdeep Sidhu in a statement. “One of these reasons is code-base maturity: Optimistic rollups are already more mature than ZK because a Zk-EVM is yet to be released and tested in the wild.”
The main difference between Optimistic rollups and ZK-rollups is that they use different security models. The former uses a technique known as “fraud proofs”, in which transactions are presumed to be correct until found otherwise, while the latter uses validity proofs, where transactions are not trusted until they show they can be. However, most blockchain experts believe that ZK-rollups will actually enable faster transactions and provide greater security than optimistic rollups once the technology has matured, explaining why Syscoin intends to integrate them in its solution later.
One of the most notable aspects of Syscoin’s Rollux solution is its accessibility. Users need only hold a few SYS tokens in order to pay gas fees for their transactions.
Phree Economy
Besides simplifying DeFi and making it faster and cheaper to use, there are great strides being made in the area of user safety. For many prospective users, one of the main shortcomings around DeFi is the Wild West nature of the space. The lack of regulation means that it’s full of pitfalls and scam projects.
Until DeFi introduces stronger regulations the vast majority of the traditional players in the financial space are likely to steer clear of it. There’s a mutual feeling among institutional investors that DeFi is fraught with risk, and they’re certainly not wrong. In addition to the highly publicized collapse of Terra’s Anchor Protocol and Celsius Finance, the last year has seen $90 million worth of user’s funds stolen in the Mirror Protocol breach, and an additional $11 million lost due to a smart contract vulnerability in Saddle Finance.
Although scams also exist in the traditional financial sector, the difference is that there’s no protection for investors in DeFi. If an investor’s funds are stolen, they’re gone forever - there’s no governing or regulatory body that can settle their claims.
Phree Economy, which is set to launch its DeFi ecosystem-as-a-service offering later this year, is looking to change this dynamic. It has created an infrastructure platform that introduces the familiar compliance checks of legacy banking to the world of crypto. By building in these investor protections, Phree believes it can make investing in DeFi a more attractive proposition and potentially attract billions of dollars of investment into the space from traditional banks and asset management firms.
What Phree is doing is introducing KYC and AML into DeFi, in addition to an asset-backed stablecoin, to create more transparent yet still permissionless protocols that can entice mainstream liquidity. Ahead of its launch, it has announced key partnerships with Parity Technologies, the developer of Polkadot, PriceWaterhouseCoopers Switzerland, and Mastercard
Not everyone agrees with the idea of bringing regulation into the DeFi space, but there seems little chance of stopping it. Phree is looking to introduce compliance at the on-ramp and exit-ramps to traditional finance, where it’s most practical. Phree says its main goal is to address investor’s fears over the lack of any protections in the event they fall victim to scams or lose funds due to a smart contract vulnerability. In this way, it can provide enough peace of mind to attract new users to explore DeFi. At the same time, greater regulation should make it much more difficult for fraudsters to engage in rug pulls. If Phree can make compliance a standard for new DeFi protocols, it will become much harder for scammers to get away with investor’s funds scot-free.
This is why Phree Economy is one of the most exciting launches of the year. If DeFi is going to become mainstream, regulation is not just desirable, it’s a critical must have.
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