Decentralized finance is being born in an era of rapid technological advancement. Starting with the launch of Ethereum in 2015 to where we are now, Decentralized finance (DeFi) has grown its legs and is running at a breath taking pace. For those unfamiliar with this new technology, simply put it enables individuals to conduct financial processes without the use of a central authority. One example of this is borrowing and lending. Today if one wanted to borrow money from the bank, that bank would need to gather information on the borrower and asses the risk of lending before actually deciding to do so. In the world of De-fi there is no central authority. Anyone can borrow money by providing collateral in the form of digital assets. This process creates trust between the borrower and lender because if the borrower defaults on paying back the loan, the collateral provided will automatically go to the lender. This new development unlocks tremendous opportunity. Especially for the 2 billion people world wide who don’t have access to traditional financial services.
However, with great opportunity comes challenges. Scaling De-Fi to the masses is an issue that is yet to be completely solved due to the Blockchain Trilemma.
Blockchain provides trust among parties at a cost. Any platform that aims to host decentralized applications will run into this issue. Blockchain only allows optimization for 2 out of the 3 features above. Lets quickly breakdown these features.
Scalability: This refers to the throughput of the platform. The larger the amount of transactions that can be processed per second the more scalable. This is speed. If defi is to ever be a feasible option for people around the world, it needs to be able to process transactions quickly. Comparing traditional services to decentralized ones, Visa currently handles 65,000 transactions per second while Ethereum (the largest smart contract platform) handles roughly 15 transactions per second.
Decentralization: This refers to how much authority is delegated across the network. Generally speaking the more entities established as decision makers the more decentralized. This ensures that decisions such as transaction confirmation, protocol updates, etc. are done so in full agreement among as many entities as possible. Visa is one organization making all decisions. At time of writing Ethereum is just shy of 7000 nodes. Each of which have to come in agreement for the protocol to run.
Security: As it pertains to blockchain, security put simply is any platform’s resistance to hacks and tampering.
There are many protocols striving to be the platform that solves the scalability trilemma. Products like Ethereum, Cardano, Polkadot, and Binance Smart Chain are building solutions to negate the negative affects of only having 2 out of the 3 features. Ethereum’s base layer is currently optimized for decentralization and security and lags in scalability. Currently going through the Eth 2.0 upgrade, Ethereum is relying on layer 2 solutions to improve its scalability. Binance Smart Chain is optimized for security and Scalability, but is highly centralized with only 21 nodes confirming functions on the network.
Radix transforming the landscape
Founded in 2013 by developer Dan Hughes, Radix was created with the vision of becoming a global platform for decentralized financial applications. After 8 years of research and iterating upon solutions the product finally launched at the end of 2020 providing unbounded scalability without breaking composability. This is key. As previously mentioned, products like Ethereum and Polkadot are building towards a future where scalability, security, and decentralization are all encompassed on their platforms. However, the applications running on their platforms lack standardization and connectedness. They operate in siloes which make replication of features within applications and execution increasingly difficult. This not only slows down processing, but it also puts a burden on developers deploying their applications. On the Radix platform composability brings this all together in a way that solves these roadblocks.
Today, one of the main industry solutions for increasing scalability without compromising security or decentralization is through a process called sharding. Sharding is a method of breaking up blocks on the blockchain into smaller pieces for simultaneous processing among different nodes on the network. Simply put, different applications can run on different shards to alleviate the pressure of all being run on one single blockchain. This is usually done on a separate layer than the base layer of a smart contract platform like Ethereum. The problem with this is that these applications and their associated transactions are separated among these shards and can’t communicate with one another as easily as they should. Coordination efforts must be done which bogs down transaction processing. Through their consensus mechanism called Cerberus, Radix has found a way to enable seamless coordination across applications without sacrificing composability. Instead of adding a sharding layer to a blockchain like today’s industry standard, the Radix ledger begins pre-sharded and Cerberus provides secure consensus among an arbitrary number of these shards. You can read the details of this process in section 4 of their Defi whitepaper.
Technology without proper economic incentives is meaningless in the defi space. This section will cover the Radix token and how it is utilized in the ecosystem. More details can be found in their Economic Whitepaper.
The token for Radix is currently an erc-20 token with symbol e-XRD. Once Radix launches its mainnet it will facilitate a token swap 1:1 to XRD. This section will only focus on the details of the e-XRD token.
Transaction Fees: Any network operation on the platform will require a fee. These network operations include transactions, messaging, token creation, etc. Once the operation is complete the fee is burned, causing a deflationary pressure on the supply of the token.
Staking: Staking is a method of providing and locking Radix tokens to the network in order to become a network validator. In doing so, staking providers will receive network emissions in the form of Radix tokens for securing the network. The first version of Radix will be capped at 100 staking node validators on the betanet before moving over to the mainnet where this number will be increased. This aligns with their goal of decentralization, where the more staking validators on the network the more decentralized it becomes.
The total supply of the E-Radix token is 4.41 billion and will be distributed per the chart below.
Of the 4.41 billion tokens, 4.2 billion will be distributed as 99% locked and 1% unlocked. The locked token will be released in stages as the price of the token reaches certain milestones. These price milestones can be viewed in the table below.
Token Supply Schedule
In a space as rapidly evolving as defi, protocols are racing to meet market demand. The Radix project has stood out to me as a key differentiator due to their methodical approach, their answer to the blockchain trilemma, and the ground up approach they have utilized in the creation of their Cerberus consensus mechanism. Projects having a first mover advantage like Ethereum in a nuanced industry like defi can be imperative to success, and for Radix it will be an uphill battle to acquire the same level of developer community. However, with how seamless they have made their platform and the attention to the needs of end users and developers this is a project I have high hopes for. As always, do your own research and question all assumptions.