{"id":167376,"date":"2021-01-31T17:07:00","date_gmt":"2021-01-31T14:07:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/defi-has-to-be-improved-by-embracing-its-peer-to-peer-aspect\/"},"modified":"2021-01-31T17:07:00","modified_gmt":"2021-01-31T14:07:00","slug":"defi-has-to-be-improved-by-embracing-its-peer-to-peer-aspect","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/defi-has-to-be-improved-by-embracing-its-peer-to-peer-aspect\/","title":{"rendered":"# DeFi has to be improved by embracing its peer-to-peer aspect"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a2570222baad\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a2570222baad\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/defi-has-to-be-improved-by-embracing-its-peer-to-peer-aspect\/#Why_DeFi_needs_peer-to-peer_solutions\" >Why DeFi needs peer-to-peer solutions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/defi-has-to-be-improved-by-embracing-its-peer-to-peer-aspect\/#Changing_the_LP_and_native_token_narrative\" >Changing the LP and native token narrative<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># DeFi has to be improved by embracing its peer-to-peer aspect <\/strong>&#8221;<br \/>\n<img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDEvNjk2MzI1ODctZGNmYi00MTQ5LTg5YTEtZTliYzBmZTBmMWRlLmpwZw==.jpg\" \/><\/p>\n<div class=\"post-content\" data-v-5a136f3a>During this first wave of decentralized finance projects and services, users have been more than willing to part with their funds. It is very similar to how decentralized exchanges work, as convenience seems to trump privacy and security in DeFi. Just because some platforms offer a high <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.investopedia.com\/terms\/a\/apy.asp\">annual percentage yield<\/a> does not mean anyone should give up control of their funds.<\/p>\n<p>Considering that DeFi is designed to be built on blockchain <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/technology\/\" data-internallinksmanager029f6b8e52c=\"4\" title=\"Technology\" target=\"_blank\" rel=\"noopener\">technology<\/a>, there is no reason for go-betweens, inter<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">media<\/a>ries or fees. Unfortunately, these aspects are all present in a lot of solutions today. Regrettably, users have to pay to deposit funds and withdraw them again afterward. Concepts like these will eventually be the downfall for DeFi unless developers address them soon.<\/p>\n<p>Uniswap, currently the <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/defipulse.com\/\">fourth-largest<\/a> Ethereum DeFi project by total value locked, shows how noncustodial DeFi works. The DEX never takes control of user funds \u2014 not even when adding liquidity to trading pairs. Its downside is that the escalating Ethereum gas fees hamper it. Using Uniswap is very easy, but paying over $20 to move funds in and out is unacceptable.<\/p>\n<p>Ultimately, the end goal of DeFi is to let crypto enthusiasts earn a passive revenue stream without contracts or platforms taking custody of funds. Several projects already explore that option, but there is room for further improvements.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Why_DeFi_needs_peer-to-peer_solutions\"><\/span>Why DeFi needs peer-to-peer solutions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>In the current landscape, interfacing with decentralized finance relies on trusting smart contracts that may need an external audit. Unfortunately, this has given rise to a growing number of scams, rug pulls and projects suffering from hacks or other attacks. It makes the entire industry look weak and unprofessional.<\/p>\n<p>A CipherTrace report from November 2020 <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/ciphertrace.com\/half-of-2020-crypto-hacks-are-from-defi-protocols-and-exchanges\/\">confirms<\/a> that half of the 2020 cryptocurrency-related hacks were due to insecure DeFi protocols or scams \u2014 an astonishing development \u2014 yet people keep pouring money into unknown projects. While exchanges lose more funds than decentralized finance projects, these statistics need to improve quickly.<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>Roundup of crypto hacks, exploits and heists in 2020<\/em><\/strong><\/p>\n<p>Having the ability to earn up to 12% passive interest on one\u2019s existing crypto holdings is a lot more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>ealing \u2014 especially when there are no lock-in periods for funds, as you can take money out of a solution at any time. It makes for a smarter, safer, more passive approach to putting one\u2019s crypto assets to work. While an APY of up to 12% may not seem significant when compared with returns of up to 1,000%, it involves less risk and trust. I know where I\u2019d put my money.<\/p>\n<p>More importantly, a solution such as this comes with a peer-to-peer marketplace. Users looking to make loan offers have many options to choose from without requiring approval from intermediaries. Combined with a platform\u2019s approach to insurance and creating a protection fund \u2014 as well as thorough audits \u2014 there is a lot to appreciate from this \u201csecond-gen\u201d DeFi protocol. Moreover, support for more digital assets has to become the norm in decentralized finance.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Changing_the_LP_and_native_token_narrative\"><\/span>Changing the LP and native token narrative<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>A popular trend in the current DeFi landscape is providing liquidity or liquidity protocol token farming. The concept has gained momentum thanks to Uniswap and other automated market maker platforms. The biggest drawback is that users are parting with two tokens and their balances to provide liquidity.<\/p>\n<p>For example, if one wants to provide Uniswap liquidity, you need Ether (ETH) and Tether (USDT), or Dai and MKR, and so forth. For newcomers, this creates a big hurdle to overcome. This requirement of having to own the \u201ccorrect asset\u201d to partake in LP farming will not survive much longer. A new solution needs to be found, and LP grouping will make a significant impact.<\/p>\n<p>LP grouping ensures that users only need to own one \u201casset\u201d of the liquidity pair to provide liquidity. The smart contract can match them with other users who have the opposite asset. Creating a \u201cgrouped pool\u201d to match these users will significantly boost overall DeFi participation and reduce the risks of providing liquidity.<\/p>\n<p>An extra benefit is that LP grouping entitles users to earn compounding interest on their original asset and earn platform-native tokens. It is a curious concept that will make users more \u201cloyal\u201d to the platform of their choice. This is certainly an option worth exploring for anyone serious about advancing DeFi to the next stage. I hope to see more initiative involving LP grouping \u2014 or concepts that can perhaps improve upon it \u2014 pop up in the coming months.<\/p>\n<p>The same applies to issuing native DeFi tokens as governance assets. More often than not, some tokens serve a speculative purpose first and foremost. Some platforms take a bolder approach by actively separating their utility and governance tokens. A dual-token approach is the way forward, and proper boundaries need to be established by DeFi providers. Dual tokens can also boost liquidity provision and trading volume when executed correctly.<\/p>\n<p>Similar to how Bitcoin evolved from \u201cplay money\u201d to the world\u2019s leading cryptocurrency, DeFi platforms need to undergo an evolution. That will only happen by building new infrastructure and growing the overall community.<\/p>\n<p class=\"post-content__disclaimer\"><em>This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.<\/em><\/p>\n<p class=\"post-content__disclaimer\"><em>The views, thoughts and opinions expressed here are the author\u2019s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.<\/em><\/p>\n<div>\n<div style=\"background: rgb(239, 239, 239); border: 1px solid rgb(204, 204, 204); padding: 10px;\"><strong>Alex Zha<\/strong> serves as director of global operations at MXC Exchange, a one-stop cryptocurrency service provider. Prior to MXC, he gained experience at OKEx as senior global marketing manager. Alex is a veteran in the cryptocurrency and blockchain industry and is a well-versed marketing and operations specialist who believes blockchain and cryptocurrency will usher in the era of modern financial inclusion. He holds a master\u2019s degree from the National University of Singapore.<\/div>\n<\/div>\n<p><template data-name=\"subscription_form\" data-type=\"defi_newsletter\"><\/template><\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. 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It is very similar to how decentralized exchanges work, as convenience seems to trump privacy and security in DeFi. Just because some&#8230;<\/p>\n","protected":false},"author":1,"featured_media":167377,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDEvNjk2MzI1ODctZGNmYi00MTQ5LTg5YTEtZTliYzBmZTBmMWRlLmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74862,74894,74868,74891,74870,4965],"class_list":["post-167376","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-bitcoin","tag-blockchain","tag-defi","tag-ethereum","tag-p2p","tag-technology"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/167376","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=167376"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/167376\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/167377"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=167376"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=167376"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=167376"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}