Decentralizing finance using blockchain Koshik Raj Intro to open finance Consenso Labs

Agenda ➔ Introduction to Bitcoin and DLT platforms ➔ Finance and challenges ➔ Enterprise DLT in finance ➔ Open finance (DiFi) ➔ DiFi projects ➔ Maker, Compound, Nuo, Uniswap, MolochDAO, DAOStack ➔ Challenges

Distributed Ledger Technology (DLT) ➔ Each node holds a copy of the ledger ➔ Blockchain + P2P+ Consensus algorithm = DLT

Ethereum platform ➔ Ethereum houses its own distributed virtual machine, and scripting language called Solidity ➔ Ethereum is a widely-used platform for creating decentralized applications ➔ Decentralized applications are deployed on public ledger

What’s wrong with the existing financial system? There are an estimated 1.7 billion people who currently lack access to financial services. Remittance is expensive and time consuming in the existing siloed services Any kind of loan issuance is a costly and time consuming process

Traditional vs Decentralized system

Enterprise DLT in finance ➔ Cross border payments ➔ Trade finance ➔ Banking and lending

Decentralized Finance/ Open Finance Decentralized Finance (DeFi) is the movement that leverages decentralized networks to transform traditional financial services into trustless and open protocols that run without intermediaries.

More about DeFi ➔ DeFi system built from the ground up with a set of open-source protocols that are deployed on a public blockchain like Ethereum, EOS, TRON. ➔ It has the ability to be a financial tool that is outside of government and regulatory control ➔ It doesn’t have geographical barriers ➔ DeFi system is not completely decentralized as they still depend on some of the external inputs.

What does it provide? ➔ Instant transaction settlement and novel secured lending methods ➔ No credit checks, meaning broader access to people that cannot tap into traditional services ➔ Transparency of loan issuance, collateral, repayment ➔ Standardization and interoperability (Open integration) ➔ Collateralization of digital assets

DeFi projects Maker protocol (Debt market) Compound Finance (Lending protocol) UniSwap (P2P exchange: DEX) DAOStack (Governance)

Notable projects ➔ Nuo, ETHLend, Dharma (P2P Lending) ➔ Augur (Prediction protocol) ➔ TokenSets ➔ InstaDApp (DeFi bridge)

Maker protocol MakerDAO is a decentralized organization dedicated to bringing stability to the cryptocurrency economy Maker protocol has 2 token system ➔ DAI - A stable coin ➔ Maker - Governance token

DAI economics ➔ Supply curve is shifted through a permissionless credit factory on Ethereum ➔ Actors are incentivized to shift the supply curve to ensure that the price is close as possible to $1

Collateralized Debt Positions ➔ Maker is a smart contract platform that stabilizes the value of Dai through a system: Collateralized Debt Positions ➔ CDPs hold collateral assets deposited by a user and permit this user to generate Dai ➔ Active CDPs are always collateralized in excess

The CDP interaction ➔ Step 1: Creating the CDP and depositing collateral ➔ Step 2: Generating Dai from the collateralized CDP ➔ Step 3: Paying down the debt and Stability Fee ➔ Step 4: Withdrawing collateral and closing th e CDP ➔ Default: CDP is automatically liquidated if the collateral value (in USD) falls too low

Maker protocol actors

Maker updates Introduced Multi-Collateral Dai (Nov 18th) ➔ Collateral can be any approved asset (Not only ETH) ➔ More diversified and stable ➔ CDP is renamed to (Maker) Vault ➔ Existing DAIs are renamed to SAI

Compound Finance (Money market) ➔ It is a protocol that establishes money markets on Ethereum blockchain ➔ Contains pools of assets with algorithmically derived interest rates, based on the supply and demand

Supplying assets ➔ User can supply an asset to the pool of asset and earn interest ➔ Assets supplied to a market are represented by an ERC-20 token balance (“cToken”),

Borrowing assets ➔ Compound allows users to frictionlessly borrow from the protocol, using cTokens as collateral with floating interest ➔ Each market has a collateral factor ( borrowing capacity), ranging from 0 to 1 ➔ Liquidation is performed when borrowing outstanding exceeds their borrowing capacity

Uniswap decentralized exchange (DEX) ➔ Uniswap is a completely decentralized exchange on Ethereum blockchain ➔ A simple smart contract interface for swapping ERC20 tokens ➔ Provides liquidity of any Ethereum asset ➔ Kyber, Oasis, 0x are other popular DEXs

DAOStack (Decentralized governance) ➔ Its decentralized model to organize, govern the profit and non profit businesses. ➔ The investors can directly and collaboratively take decisions ➔ DAOStack provides an interoperable scalable governance platform for companies ◆ Submit project proposal ◆ Proposals are passed by community vote ◆ Records are secured and transparent

DeFi challenges ➔ The platforms are not user friendly for general audience (learning curve) ➔ Scalability limitations of the existing blockchain platforms ➔ No friendly regulatory compliance for the digital assets

“Keep calm and DeFi” Contact me: Koshik Raj linkedIn: koshikraj GitHub: koshikraj twitter: rajkoshik [email protected] www.consensolabs.com “We are hiring for SDE interns and blockchain devs” https://angel.co/company/consensolabs