Substrate and DeFi: A Growing Collaboration
Substrate and DeFi: A Growing Collaboration
Table of Contents
1.What is DeFi?
2.DeFi Overview
3.What is Substrate?
4.Substrate and DeFi: A Growing Collaboration
5.How to Invest in DeFi
6.DeFi Blockchains on Substrate: A Reef Case Study
What is DeFi?
DeFi is the short form for decentralized finance: the term is used to refer to a blockchain-based financial system that is usually built on Ethereum or similar blockchain systems. DeFi works by eliminating the need for intermediaries such as banks, brokers, stock exchange platforms, and financial institutions in business transactions.
DeFi facilitates international business transactions by providing faster means of identification and eliminating all the bureaucracies involved in regular business transactions. Decentralized finance employs the use of smart contracts which are available for everyone on the blockchain to access. DeFi provides an open platform where financial data is not manipulated or changed and users have complete control over their finances.
Decentralized finance allows its users to trade, lend and borrow with the aid of software that records and verifies financial data in distributed financial databases. These databases contain aggregates of financial information that are eventually verified by a consensus mechanism. DeFi operates as a peer-to-peer model, which is a person-to-person transaction model that enables you to send money to anyone from anywhere and at any time.
DeFi Overview
DeFi has not been around for so long: it was not until sometime in 2014 that MakerDaO, the first DeFi-based platform was launched. MakerDaO was founded by Rune Christensen, Nikola Mushegian, and some others. It became one of the first decentralized autonomous organizations to launch on the Ethereum blockchain. In 2018, platforms like Compound Finance and the Uniswap Decentralized Exchange were launched to provide financial services on the blockchain. In 2020, the Total Value Locked(TVL) across all DeFi protocols exceeded 10 billion. To date, DeFi is on the lips of everyone interested in the crypto and fintech industry.
Decentralized finance has a unique structure: it consists of main components such as hardware on which applications are built, software, and stablecoins. In the DeFi ecosystem, there are other components such as decentralized lending, decentralized prediction markets, decentralized infrastructure, decentralized payments, and decentralized wallets. The various components contribute to building a seamless platform for business transactions.
DeFi is popular for a good reason: people know they can trust the platform. This is because transactions are open for everyone to view on the blockchain and fraudulent activities are unlikely to be carried out on the platform. Users are given anonymity and full control over the trading and borrowing of their assets, unlike what is obtainable on centralized finance platforms. Decentralized stablecoins which are backed up by reserves of fiat currency are used, so transactions are guaranteed full security. This is why more investors are putting their money into the decentralized finance industry.
What is Substrate?
Substrate is a blockchain framework that helps developers swiftly build future-proof blockchains optimized for any use case. Substrate is a flexible tool that you can use for development, debugging, and deployment. It makes the process of creating forkless blockchain upgrades easier for its users. Substrate gives developers freedom of choice when it comes to blockchain design: as a developer you can choose and hot-swap components which are also known as pallets. These pallets could be the network stack, consensus, or the finality engine. You have the option to choose from the already made pallets or create your pallet.
In 2016, Dr. Gavin Wood came up with the idea for Polkadot. Polkadot connects several blockchains to create a platform that provides more advanced applications. Two years later, the developers behind Polkadot(the Parity team) came together to build Substrate. Substrate was designed as a framework that contained all the functionalities required to create a blockchain. The aim was to give users technical freedom, but also to make other functionalities like accounts, smart contracts, and governance as easy as possible.
Today, Substrate boasts of over 150 projects built on its ecosystem. Projects such as AnKR, Band Protocol, Chainlink and Enjin are building on Substrate. A good reason why Substrate is being adopted by more organizations is its flexibility. For instance, Substrate does not always require smart contracts: you can create modifiable functions to secure your network. In addition, you can easily integrate your apps with the blockchain. These factors make Substrate easily adopted by numerous crypto based organizations.
Substrate and DeFi: A Growing Collaboration
Substrate is a flexible and easy to use tool, hence its usefulness in the many sectors of the blockchain network. There are many applications of Substrate: they range from infrastructure protocols to Non-Fungible-Tokens(NFTs) and even gaming. However, the importance of Substrate in the decentralized finance world cannot be overemphasized. Hence more organizations in the DeFi space are building their projects on Substrate. For instance, SushiSwap which is known as an automated market making(AMM) decentralized(DEX) exchange being built on top of Moonbeam is being built on Polkadot through Substrate. In addition, the MantraDAO project is being built on Polkadot. The project is community based and designed to focus on staking, lending and governance.
There are many other projects springing up in the DeFi space and with the increased number of investors, there will be more new Substrate and DeFi collaborations. In 2020, Bette Chan, the co-founder of Acala Network discussed creating the DeFi substrate for Polkadot, with much emphasis on the possibilities that Polkadot could offer. In May 2021, the novel Substrate based DeFi platform which is known as Reef Chain announced its official launch. Reef was designed to be Ethereum Virtual Machine(EVM) compatible. This was to enable developers to easily move their existing applications from Ethereum without any change in the base code. Reef offers many amazing features like staking, liquidity bridges, on-chain upgradability and governance rewards. Reef is a relatively new platform but you can be rest assured that with the new Substrate DeFi collaborations, there will be more competitors for the platform.
How to Invest in DeFi
Investing in DeFi may seem quite tricky, but it is simple. There are several ways to invest in DeFi and make yourself some cool cash. You should do your research about the DeFi investments available to you and invest with your spare cash. You can invest in DeFi coins by buying them with the intention of holding long term or selling for a profit.There are over 540 DeFi coins available for you to buy: start with the popular ones like UNI and CAKE. You can also try staking your DeFi coins: you earn by holding your coins for a fixed period, for example 30 days. A similar option to staking is obtaining good loans from DeFi platforms and investing the borrowed assets in DeFi coins. Alternatively, you can try yield farming: earnings come from a percentage of the trading fees when you provide liquidity. If you are a low risk investor, investing in DeFi stablecoins may be the best way to go. This is because these DeFi stablecoins are usually backed to fiat currencies and volatility in price will not be a significant challenge for you. Non-Fungible-Tokens(NFTs) are very lucrative at the moment: investing your money as a DeFi NFT collector or your time as a DeFi NFT creator may be extremely financially rewarding. You can try all of the above DeFi investment methods to see which one works for you and stick with that method.
Regardless of the DeFi investment methods you employ, it is important to use trusted platforms with good reviews and a secure wallet with two-factor authentication. You should also be aware of the level of risk involved for each investment. Do not borrow money or use your life savings to invest in DeFi: all investments have some risk involved. Always stay informed on your investments: watch out for reports on profits and losses, so that you can know when to pull out of an investment or throw your money all the way in DeFi.
Defi Blockchains on Substrate: A Reef Case Study
Reef is a smart contract blockchain built on Substrate framework. It is a modular layer 1 blockchain built for DeFi, NFTs and gaming. Apart from being built with Substrate, Reef has EVM support and uses Nominated Proof of Stake consensus. Reef is designed to help developers move their decentralized applications(DApps) from Ethereum without any change in the base code. This is in line with Reef Finance's goal to make DeFi available for everyone to invest in and create opportunities for people to build DApps on Reef Chain.
Reef gives its users an interesting user experience: there are multiple options to choose from. There is the Reef app, which offers a wallet, decentralized exchange(DEX) and token creator. The Reef app requires a browser extension for you to use the app. There is also the Reef Extension which is a Chrome or Firefox browser extension that enables you to connect to the Reef Chain and access your wallet. Alternatively, you can use Polkadot Extension and Klever to access your Reef wallet. If you want a data experience, blockchain explorers such as Reefscan and Subscan offer data on the Reef Chain for you to access. Reef also offers DeFi services on Reefswap, its Uniswap V2 based DEX for Reef Chain tokens.
The Reef Ecosystem is expanding: more investors are aware of the revolutionary platform and how it has revealed the possibilities that a Substrate and DeFi collaboration can create. The platform which boasts of 40 second transaction finality, a maximum block size of 3.75 MB and a predictable algorithmic fee model is being adopted by many individuals in the blockchain space. The REEF token as at the 10th of July is reported to be worth $0.003529 USD on Coinmarketcap with a 24-hour trading volume of $5,468,862 USD. Reef Finance in general covers multiple sectors in the blockchain industry: DeFi, NFTs, gaming and stablecoins. Therefore it is likely that the Reef model will be sustainable for years to come, creating a legacy for more blockchain based organizations to learn from.
