AESwap Series: Three Major Breakthroughs in DeFi and the Decentralized Revolution

AESwap Series: Three Major Breakthroughs in DeFi and the Decentralized Revolution

By aelf_blockchain | aelf Blockchain | 4 Sep 2020


 

After a sluggish year in 2019, the blockchain industry has been revived this year by DeFi, a highly innovative financial model. 2020 will no doubt go down as a very special year, as the coronavirus has plunged the global economy into recession and put millions of people out of work. Amid this difficult time, the blockchain industry has somehow bucked the trend. Not only was it unscathed by the Covid-19 pandemic, it has even made a couple of major breakthroughs.

Decentralized finance, or DeFi, which has been around since 2018, is a fascinating field and has been particularly popular with investors, exchanges and projects this year. The reason is obvious. Unlike the traditional centralized financial model, DeFi is entirely decentralized and highly automated, requires no third-party custody, and its transaction records are transparent and traceable on the blockchain. Many people saw in it an opportunity to revolutionize finance. Blockchain companies are putting big money into the field. Moreover, the traditional financial industry and governments have also made many attempts and conducted a lot of research.

After two years of steady growth, DeFi suddenly took off in the first half of this year as a large number of decentralized lending, asset management and derivatives services and protocols began to be known to the public. Much like the dApp craze three years ago, Ethereum is once again being sought after by everyone. These smart contract-based projects, including Compound, Maker, Aave, Yearn, etc, have grabbed the headlines and attracted large investment. And far from slowing its pace down, DeFi began to move forward even faster.

The first major breakthrough is the invention of the so-called “liquidity mining”. In order to incentivize people to put money onto their platforms, DeFi projects would issue their own tokens, which are distributed in proportion to the staked funds of the investors. Since these tokens are limited in supply under their protocols, they will appreciate as they circulate on the exchanges. I must add that “liquidity mining” is not rocket science, as you will find out in the next articles.

The second breakthrough is the popularity of decentralized exchange (DEX) represented by Uniswap. Many people have long been dissatisfied with centralized exchanges and yearned for an exchange that is not controlled by centralized institutions. Then Uniswap came along, and supporters of decentralization felt that a whole new world has opened up to them. Essentially an Automated Market Maker, Uniswap soon attracted a huge amount of funds locked in its contract, thanks to its powerful algorithms and the incentive of liquidity mining.

The third breakthrough is now quietly taking place, as large public chain projects are getting involved in the field of DeFi. For these projects, DeFi brings a lot of benefits. First, DeFi projects can draw a lot of capital to their projects, which can help grow their communities. Second, since most DeFi projects (according to the data on DeFi Pulse) are based on Ethereum, their applications are very limited, whereas other public chain projects can allow their own tokens and those of the star projects to circulate freely via cross-chain technology, thus promoting the value of both. Third, for any large public chain ecosystem, finance can promote dApp development and be a new driving force for ecosystem growth. Lastly, DeFi has obviously become the infrastructure of large public chain projects. Strategically, it is very important to gain a first-mover advantage in the competition. Therefore, whoever can build a powerful financial infrastructure ahead of everyone else will be able to build a large and strong ecosystem.

The third breakthrough is now quietly taking place, as large public chain projects are getting involved in the field of DeFi. For these projects, DeFi brings a lot of benefits. First, DeFi projects can draw a lot of capital to their projects, which can help grow their communities. Second, since most DeFi projects (according to the data on DeFi Pulse) are based on Ethereum, their applications are very limited, whereas other public chain projects can allow their own tokens and those of the star projects to circulate freely via cross-chain technology, thus promoting the value of both. Third, for any large public chain ecosystem, finance can promote dApp development and be a new driving force for ecosystem growth. Lastly, DeFi has obviously become the infrastructure of large public chain projects. Strategically, it is very important to gain a first-mover advantage in the competition. Therefore, whoever can build a powerful financial infrastructure ahead of everyone else will be able to build a large and strong ecosystem.

As a high-performance and self-developed public chain project, aelf is naturally taking center stage in this revolutionary trend. Aelf has begun working on DeFi quite early on and has just launched its first DeFi platform — AESwap. In the next article, I will explain what aelf is aspiring to achieve in the field of DeFi .

 

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