What is DeFi?
DeFi is short for decentralized finance and refers to an all-inclusive ecosystem of applications, financial services, and other financial infrastructures that operate within the key principles of privacy, transparency, neutrality, and sovereignty. DeFi tools are openly accessible and operate utilizing blockchain technology, and it will be a game-changer for the financial world and the global economy as we know it.
Decentralized finance includes a wide spectrum including digital assets, smart contracts, dApps which are built on blockchain technology. Considering the amount of development and flexibility involved, the Ethereum platform is currently the foremost choice for DeFi applications; however, it is not the only one.
Imagine an open financial system in which financial tools and services can be built in a decentralized manner. Since these applications are always built utilizing blockchain technology, the data can easily be verified.
With the use of decentralized technology like smart contracts, DeFi has led to the elimination of middlemen, which have long plagued finance unnecessarily. This has created favorable situations where:
- One can get access to instant loans without the need for paperwork sans any bank approval.
- One can earn real interest with their assets without the need to sacrifice them due to the prevailing low-interest rates.
- Quick issuance of company stocks without the need for banks to intervene thereby saving one from exorbitant bank fees.
History of Bitcoin & DeFi
DeFi, or decentralized finance, originated from blockchain technology.
Bitcoin, which most people have at least heard of by now, was the forefather of Defi. Bitcoin was created by an individual or a team of individuals under the pseudonym of Satoshi Nakamoto in 2009 as a peer to peer electronic cash system. Peer to peer in this instance meaning that individuals can transact with one another directly, user to user, without a trusted third party.
Bitcoin was created in response to the bank bailouts after the 2008 financial crisis and a time where major banks were accused of rampant fraudulent activities. It emerged like the phoenix out of the ashes and provided hope for a new way of life that many citizens of this world so longed for. This innovative and exciting notion laid the foundation of a decentralized, censorship-resistant, and open and transparent platform, with the intent of replacing or strengthening the traditional system of value exchange.
The emergence of DeFi
Bitcoin is the first major and successful public blockchain and it is still the most popular and largest in terms of market capitalization. Yet over ten years after its invention, thousands of projects have been rolled out under the same guiding principles of decentralization. Bitcoin being open-source has allowed developers around the world to contribute to the community and create similar projects. The new currencies that emerged after, based on either blockchain or similar technologies, are known as cryptocurrencies that thrive on the ideologies of DeFi.
Consider the situation of a laborer who doesn’t own any bank account who has his daughter working in the US. Under the current remittance system, the fee alone overcharges the funds she sends by 7%. This apart, the laborer has no access to financial markets for making any investments. Inflation can eat away at his income over time, as he is unable to earn any interest over it.
DeFi enters the building.
Today, with the implementation of DeFi, the laborer can not only enjoy a larger portion of the funds due to lower fees, but an app on his smartphone allows him to invest a certain amount to generate a return on his savings.
The top financial leaders of the country have been holding on to their indomitable positions for long. But with glaring inequalities of these global financial systems in the wake of economic meltdowns, the dominance of the traditional financial system is waning.
With this pattern emerging in almost every region of the world, many crypto startups have risen like a phoenix with divergent sets of ideas, and with one principal intention: to ensure that financial services are accessible to everyone on a global scale. The adoption of Blockchain technology in finance is reshaping the existing ecosystem into a new world which is what we call Decentralized Finance or DeFi. With DeFi, not only finance is accessible to everyone, but it is also characterized by a relatively lower transaction price and security.
Let’s take a closer look a how DeFi measures up with traditional finance.
How DeFi scores over Traditional Finance
The best part about DeFi is the autonomy, which will in the coming years overthrow the central control exercised by governments and larger enterprises. DeFi certainly scores over Traditional finance, we tell you how:
- Irrespective of who creates, administers, and manages any DeFi service, there is complete transparency in its operations.
- Users have 100% control and access to their money. Custody is not in the hands of any financial institution like a bank.
- There are no geographical boundaries restructuring you, neither is there a dependence on verifying, again and again, your identity to manage digital assets. For those 1.7 million unbanked people, DeFi facilitates access to money with absolute control of money by its users.
- At the center of its operations, DeFi is not controlled by any institutions. The major role played is by the algorithms which are written in code or through smart contracts. After deploying smart contract DeFi apps can run without any human intervention.
- Lastly, DeFi comes with the power of code transparency making it possible for anyone to audit. This develops trust and the transactions being pseudonymous, questions about privacy are unlikely to emerge.
Many have pointed out that DeFi is just another form of ‘Open Finance’ which has been a matter of debate ever since it came into being.
The benefits of DeFi
In the quest to shape the global financial system, DeFi offers myriad benefits.
- DeFi is a disruptive concept that aims to tear apart the concept of status wealth. It enables wider global access to financial services. It intends to eliminate the barriers that prevent global access to financial instruments.
- The cross border payments are affordable because the role of intermediaries has been eviscerated.
- There is little doubt that DeFi provides superior security and unmeasured privacy. Centralized institutions are vulnerable to breaches. DeFi does not have any single centralized source of failure for any breaches to occur.
- Decentralized Finance also offers censorship-resistant transactions. The DeFi system brings the required stability and is a pefect option for those countries which are reeling under the rule of corrupt governments and leaders.
- In terms of becoming more mainstream, developers of DeFi applications are incessantly focussing on creating a seamless, integrated, transparent, and intuitive user experiences so that the full advantages of DeFi can become apparent to the mass general pubic
While each of the benefits is powerful in their own right, a combination of these can bring profound implications.
The Future of Decentralized Finance
DeFi is powered to change the world economy. It will enable the unbanked to join the rest of the world and become a part of the economic system thereby accelerating new investment opportunities. All the challenging areas in the financial system like loans and remittance is easily addressed by DeFi.
By removing inaccuracies, middlemen, and centralized control, DeFi is without a doubt the future of the entire financial sector and will transform the global economy.
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Saffron Finance: SFI a new DeFi bluechip? This hidden crypto gem seems primed for massive growth.
November 10, 2020
Saffron Finance or SFI, is currently one of the hottest defi projects right now that is still very much under the radar.
Just as we have reported on YFI, CORE, and Curve long before most DeFi news organizations, this is one we’re definitely adding to our watchlist.
Just like the aforementioned tokens, SFI seems to be in the same league of technical expertise mixed with an extremely creative application, all with code that is completely original. Here’s what you need to know about Saffron Finance.
What is Saffron Finance?
Saffron. Finance is bent towards innovative offerings in the crypto world. It is a protocol meant for the tokenization of on-chain assets. There is an advantage of the format of the tokenization of on-chain assets as it allows the liquidity providers great flexibility and unhindered access to the base collateral leveraging the benefits of staking.
Typically due to the overcrowding of different scenarios, Liquidity providers have to undergo insurmountable impermanent losses as a result of extreme volatility.
Yet, Saffron is one such protocol that narrows down such outcomes and provides liquidity providers with the necessary dynamic exposure.
Customize your risk
Liquidity providers can now select and customize their risk and return profile with the use of Saffron Pool Tranches. Pools are segregated into different tranches each having their own set of properties. The different tranches here are:
AA Tranche: In this case, the LPs add liquidity to the AA tranche earn less interest but are protected and covered in case of loss from platform risk. The covered capital comes from the principal and interest earnings of A tranche LPs. They have a great share in the SFI token generation grabbing 80% from it all.
A Tranche: Under this category, LPs add liquidity to the A tranche and earn far better interest compared to the previous, yet vulnerable enough to lose their interest in case they are exposed to platform risks. The liquidity providers under this tranche earn 10% of the SFI tokens generated per epoch. Their earnings will not be included in covering the first loss of AA tranches.
S Tranche: The S tranche like the A tranche earns 10% of SFI generated per epoch. The S epoch has an underhand mechanism to maintain the exact value of the tranche interest multiplier. It maintains the position of equilibrium between A and AA tranches with its functionality.
Saffron individually tokenizes the future earning stream and the NPV of the used-up capital in every tranche. The earnings-based on tokenized holdings are distributed across all tranches through payback waterfalls.
The Epochs are discussed in tranches are of 14-days in length. In the epoch period, the liquidity providers can earn interest on the platforms and mine SFI tokens – the native token of Saffron Finance.
When liquidity gets locked in the pool, they can trade their Saffron LP tokens defining their ownership of the pool. But when the 14-day epoch period ends, the Liquidity providers can remove their liquidity with SFI mined and interest earned. The first epoch was already kicked off on 1 Nov and all the liquidity was added to the S tranche. The other two tranches will be available in the second epoch.
Saffron has been launched with DAI liquidity mining. With this, all DAI will be added to the Saffron pool and is used for compounding and earning interest. The best part about it all is that in the future versions of the protocol additional currencies and platforms will be added dynamically.
SFI is generated at the end of the epoch and is redeemable in proportion to the total outstanding dsec tokens generated during that epoch. They are redeemable in proportion to the total outstanding dsec tokens generated in that epoch.
Saffron smart contracts have already been deployed and their code has been verified on etherscan and already been added to a GitHub repository. The team is still working on code audits but the team’s ongoing development timeline has allowed for it and the entire set of Saffron smart contracts. The Saffron Pool, adapter, strategy, and token contracts have been tested with 10,000 DAI in the best test epoch on the Ethereum mainnet.
SFI Pools and Adapters
The platform has pools of liquidity that collect deposited base assets from LPs and deploy them on platforms in order to earn interest. Adapters connect this pooled capital to platforms.
The already launched first adapter is DAI/Compound adapter which connects the DAI pool to the Compound platform giving the DAI pool LPs the chance to pool together and earn interest on Compound. This strategy connects all pools and adapters together, selects the best adapter for capital deployment. It also generates and distributes SFI tokens to LPs at the end of every epoch.
By offering asset collateralization on its platform, liquidity providers have access to dynamic exposure and have a great advantage of selecting customized risk and return profiles.
Saffron Finance Telegram: https://t.me/saffronfinance
Saffron Medium: medium.com/saffron-finance
Ethereum 2.0 Launch: Staking, Launch Date, and More. Here’s everything you need to know.
Ethereum 2.0 – what it is and why is it necessary?
Ethereum 2.0 is a major upgrade to the Ethereum Network that aims to improve the speed, efficiency, and scalability of the network. Ethereum is up for a major facelift with the new version release which will state to drastically improve its transaction volumes, alleviate congestion, and high gas costs. Upon reaching the final phase of the upgrade, dubbed as ‘Phase 2’ Ethereum will meet the goals of being a 100% transparent and open network for decentralized finance.
Ethereum 2.0 will involve sharding to drastically augment the bandwidth and reduce gas cost making it cheaper to send Ethereum, tokens, and interact with smart contracts. The system will undergo fundamental economic changes also allowing support to stake nodes and earn Ethereum as passive income. Ethereum 2.0 is a unified effort of thousands of developers who have put in years of hard work.
The Ethereum 2.0 upgrade will be done in 3 distinct phases starting with Phase 0. After having faced criticism for the network’s high transaction costs and fragility during peak usage will Ethereum 2.0 stand up for the challenge? This we will come to know once the launch is successfully built and practiced.
The next generation of Ethereum Blockchain will go live on December 1’st and will go from a Proof-Of-Work model to a Proof-Of-Stake model where participants can tie their crypto to the network as collateral. As per the announcement, for the launch to really happen, 16384 validators will have to stake a minimum of 32 Ether worth $12,800 at current market rates thereby underpinning the network. Once the threshold has been staked it will trigger the launch of Beacon Chain in the Ethereum 2.0 genesis event.
What’s different about this time?
The most important change is that the consensus mechanism will transition from PoW to PoS which is touted to be more effective and energy-efficient in terms of network maintenance. Both PoW and PoS are designed to incentivize network maintenance ensuring that the blockchain data is tamper-proof. Hence in a PoW system, one unit of computational power equals one unit of mining power, and in PoS one unit of value secures one unit of mining power for the validator.
In Proof of Stake validators stake crypto for the right to verify the transaction. The validators are selected to propose a block based on the amount of crypto they hold and the duration of how long they have held it. The main advantage of PoS is that it is far more energy-efficient than PoW as it disengages energy-intensive computer processing from the consensus algorithm. This also means that there is a lot of computing power to secure the blockchain.
The other big change is the introduction of network sharding which will happen at a later phase. Sharding implies that only a portion of the nodes has to validate any given transaction instead of all of them. This will directly increase the network’s throughput in a big way.
The full roll-out of Ethereum 2.0 will take place in three phases: Phase 0, 1, and 2. Phase 0 as we know is aiming for a December 2020 launch date with other phases coming in the following years. Phase 0 is looking at the implementation of the Beacon chain that stores and manages the registry of validators and deploying the PoS consensus mechanism for Ethereum 2.0.
The original PoW chain will concurrently run alongside so that there is no break in data continuity. Phase 1 is due in 2021 and will see the integration of Proof Of Stake shard chains.
Ethereum 2.0 will be arguably much better than its earlier version
One of the reasons calling for the upgrade has been scalability. Ethereum 1.0 can only support 30 TPS causing delays and congestions. Ethereum 2.0 promises up to 100,000 transactions per second through the implementation of shard chains. The new version has also been designed with security in mind. Most of the Proof of Stake networks have a small set of validators making it a more centralized system with poor network security.
Furthermore, Ethereum 2.0 requires a minimum of 16,384 validators making it ultra-secure. The Ethereum Foundation is also setting up a dedicated security team for Ethereum 2.0 which will research all the possible cybersecurity issues that plague the cryptocurrency sector. One of the top researchers for Ethereum 2.0, Justin Drake said that the research will also include “fuzzing, bounty hunting, pager duty, crypto-economic modeling, applied cryptanalysis, formal verification”.
The co-founder of Ethereum Vitalik shared a roadmap of how the next few years things will pan out for Ethereum in the below-given tweet.
Harvest Finance Hack Explained. Here’s how it happened.
Unscrambling the Harvest Finance hack and its aftermath
Harvest Finance, the Decentralized finance protocol was hacked for a staggering $24 million. The attack was a reminder to the crypto community that DeFi has sure risen to prominence but it has its own share of loopholes, and it is this that the attackers take advantage of.
Harvest Finance attack details
The attacker directly attacks the protocol’s liquidity pools leading the arbitrage attack using a large flash loan – a type of uncollateralized loan. The attacker later returned $2.5 million but in a mere seven-minute act, the entire hack was complete, leaving the protocol stakeholders bewildered.
In further addition to the details of the hack, the protocol revealed that the hacker manipulated prices on one money lego which is the Curve Y pool. This was done to drain another money lego farm USDT (fUSDT), farm USDC(fUSDC) multiple times.
The attacker then converted the funds to renBTC and later excited to Bitcoin. renBTC is not synthetic because it does not rely on any liquidation mechanism and it is certainly not the price of Bitcoin on Ethereum. It is a one-to-one representation of Bitcoin on Ethereum which can be redeemed for BTC at any time and in any amount.
The native token of Harvest Finance, FARM fell 54% to $101.79 when the news of the hack came forward. Following the attack, the amount of money that was locked in the protocol plummeted from $1 billion to $575 Million On October 25th. The investors were so fretful that they pulled their deposits back.
Harvest Finance acted accordingly and withdrew all the funds from the shared pools almost immediately after it had completed a fine evaluation of the attack. It began with reconstructing the processes which included DAI, USDC, USDT, TUSD as well as WBTC and renBTC. The funds are currently present in the vaults safely so that they are not exposed to further market manipulation. The hack did not involve DAI, TUSD, WBTC, and renBTC, and the depositors in these vaults were not affected.
How was the hack carried out?
The mechanics of the protocol has allowed for the execution of such an attack. Let us see how:
The investment strategies used by Harvest involves calculating the real-time value of assets that are invested in the base real-time protocols. The value of the assets is then used by the vaults to calculate the number of shares to be used to the user depositing the funds. The same value of the assets is also used when the users take out funds from the vaults.
Payout is then calculated upon the user exit. What also needs to be noticed here is that the assets inside some of the vaults are deposited into shared pools of underlying DeFi protocols. These are subject to market effects such as impermanent loss, arbitrage, and slippage. This means that its value can be manipulated through larger volumes of market trades.
The attacker knew this well and had exploited the impact of the impermanent loss of USDC and USDT inside the Y Pool of Curve.fi by manipulating the asset value to deposit funds into the vaults and obtain the shares for a beneficial price.
The aftermath of the Harvest Finance Hack
Harvest Finance’s Twitter account has been buzzing with messages and activity. The protocol has taken full responsibility for the engineering attack and has ensured that in the future such attacks will be countered and mitigated. The protocol has made it clear that formatting a disaster management plan to assist those who are affected will be the top priority for the protocol.
The protocol is investing its resources to catch hold of the scammers and has already provided a list of Bitcoin addresses of the hacker where it believes that the stolen funds may have moved. It also had taken immediate action by asking prominent exchanges like Binance, Coinbase, and Huobi to block the attacker’s addresses. It further said that there is:
“A significant amount of personally identifiable information on the attacker, who is well-known in the crypto community.” Not willing to dox the cyber-thief, Harvest Finance is now offering a $100,000 bounty “for the first person or team to reach out to the attacker”.
Harvest further tweeted that the $2.5 million returned by the hacker will be distributed to the affected depositors on a pro-rata basis using a snapshot. The attack on Harvest comes only six weeks after the attacker escaped with $8.1 million in Bitcoin from another DeFi protocol BZX, however, BZX managed to recover the funds.