DeFi or decentralized finance is the latest buzzword in the blockchain space. Traditional financial concepts are getting new lease of life through DeFi. No middleman and no third party! The users control ownership of their funds always here. DeFi is growing at rocketing speed and seems to be revolutionary. WazirX recently decided to take part in DeFi movement and they announced launching of an Automated Market Maker (AMM) Protocol. India’s cryptocurrency industry is at a nascent stage. The recent removal of the banking ban in India drew a lot of new investors into cryptocurrency. The country has no dearth of domestic tech talents. Can India be at the forefront of the DeFi movement?
“The crust of DeFi is more transparency. This is a good thing for emerging markets like Crypto which brings confidence for institutional funds. We should expect huge funds coming in from institutional funds and we are just getting started. I’m confident that within the next few months, we’ll see an uptick of 6X volume in DeFi space with 5.6 Billion USD already locked. We at WazirX want to bring the future of finance today and build infrastructure for the next big thing for small and big investors.” - Siddharth Menon, Co-founder and COO, WazirX in an announcement
Image from DEFIPULSE
Decentralized Exchanges (DEXs) existed for a long time but Automated Market Maker (AMM) based Decentralized Exchanges (DEXs) are the most impacting DeFi innovations nowadays. AMM is fundamentally based on the swap mechanism. There is no traditional buy/sell order book here. Instead of that, there is on-chain liquidity pool. These liquidity pools are funded by different kind of tokens. The liquidity pools allow users to swap between tokens on-chain in a decentralized and non-custodial manner. Anyone can be liquidity provider and the liquidity providers earn passive income from the trading fees based on the percentage of their contribution to the liquidity pool share. Thus AMM creates extreme on-chain liquidity for a different range of tokens. Popular DeFi projects like Uniswap, Balancer etc. all are having such liquidity pools and AMM.
Whereas AMM based DEXs are doing wonderful business, the arbitrary gas fee of Ethereum blockchain has remained a big problem. Often small investors are ending up paying more gas fee than the trade volume. Matic Foundation, based at Bangalore, recently launched the mainnet of Matic , a side chain scaling solution for Ethereum. They brought 10 nodes online after years of development. Matic’s Ethereum Layer 2 is able to scale up Ethereum and it reduces transaction fees substantially. It also provides high throughput transaction (approximate 7200 TPS) while not compromising with the security of the chain. Matic is able to provide 3 Million transactions at a cost of mere $4. Sounds amazing? WazirX has chosen to launch AMM Protocol on Matic Network. The testnet is supposed to be launched in September 2020.
WRX as governance token
WazirX AMM protocol will be requiring governance mechanism. In a decentralized protocol, governance takes place in a decentralized manner. WRX will be used as the governance token. The users, holding WRX, will be able to take part in the voting mechanism of the protocol and decide the future roadmap.
Four out of five top DeFi tokens are governance tokens - From CoinMarketCap
“Today, WRX has a total valuation of over $38 Million with tens of thousands of WRX holders. Collectively, DeFi is valued at over $9.7 Billion as of now! We strongly believe that this will provide huge exposure to WRX, and push India further into the DeFi movement.” – WazirX announcement
WazirX, the leading cryptocurrency exchange of India, made crypto accessible to Indians. Now, they want to be the forerunners of the DeFi movement. India has 190 million unbanked adults and it is second only to China among developing countries in the number of residents without bank accounts or participation in the formal financial sector. Women make up almost 60% of the unbanked population of India. The share of bank accounts that remain inactive in India is the highest in the world (at 48%) as per this Forbes report. Traditional finance is unable to solve financial inequality even in the twenty-first century. DeFi can be a game-changer for India with its openness, transparency and trustlessness. Growth of DeFi in an emerging market like India will bolster investor confidence globally. The Indian startups have suffered extremely due to COVID-19 pandemic in H1 2020. The dark clouds of low investment into the startup eco-system aren't removed yet but DeFi appears as a ray of hope. The Indian tech startups have started to come up with innovative DeFi solutions. $5.8B is already locked in DeFi. The global attention will be diverted to the second-largest populated country now. India has warmed up to take part in DeFi revolution finally.