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Decentralized Finance
Decentralized finance (DeFi) is the fastest-growing sector within the cryptocurrency markets. With promises of an open-source, permissionless, and consumer-centric financial ecosystem, DeFi is set to change the trajectory of institutional finance. As of December 2021, DeFi-based protocols had US$ 251 billion in total value locked (TVL), with Ethereum dominating the market share, followed by Terra and Binance Smart Chain (BSC).
DEX Trading
Lending and Borrowing
Cryptocurrency Funds
Yield Farming
DEX Trading
Problem
- Most decentralized exchanges (DEXs) operate as order books, similar to centralized exchanges (CEXs), where users buy and sell orders at their preferred prices. The major difference between CEXs and order books DEXs is that the latter holds the assets in users’ wallets instead of exchange wallets. Order books DEXs can be off-chain or on-chain, depending on their architectures.
- However, without sufficient liquidity to back the trading volumes, a DEX can become unstable and subject to price swings and slippages. This forces users to leverage multiple DeFi protocols on different chains to swap tokens. Besides the long waiting times, high transaction costs, and slippages that users face, there is also the possibility that liquidity providers (LPs) in a given pool will experience impermanent loss.
- The liquidity problem also extends to automated market makers (AMMs)-based DEXs. In an AMM-driven DEX, buyers and sellers do not transact directly but use a collective liquidity pool (LP) and algorithmic protocols. However, rather than having a single pool that provides liquidity for an asset to connected layer-1 chains, AMMs use LPs from2 a single network.
Solution
- Analog enables a timed, multi-chain order book DEX/AMM where bids are partially-filled trustlessly across different networks of LPs. This solves the problem of liquidity fragmentation—without any centralized bridges or wrapped assets— and guarantees finality on the source chain.
Lending and Borrowing
Problem
- Various decentralized money markets (DMMs) like Aave and CREAM have emerged to provide lending and borrowing services to users in a trustless manner. Rather than functioning as centralized entities, DMMs primarily operate through smart contracts that decentralized nodes manage on-chain.
- While DMMs are attractive to users, users cannot seamlessly lend or borrow across different chains. Currently, if a user has tokens on Ethereum but wishes to borrow on BSC, they would have to collateralize on Ethereum, bridge (at a fee), borrow on BSC, and swap back on Ethereum (at a fee). This process is frustrating (due to the many steps involved) and costly.
Solution
- To ensure that DMMs do not become insolvent and stay overcollateralized, they require real-time connection to other Blockchain ecosystems. For example, borrowers that have assets on Ethereum can seamlessly borrow on BSC through a one-click transaction.
Cryptocurrency Funds
Problem
- According to Coinmarketcap.com, the global cryptocurrency market capitalization has risen to nearly US$ 1.75 trillion as of March 2022 from a paltry US$ 760 billion in 2017. The surge in market capitalization is largely due to the cryptocurrencies’ potential to hedge against current economic conditions in the traditional domain.
- Although deemed a highly volatile sector, the cryptocurrency markets provide promising opportunities to both institutional and retail investors. This is because of the Blockchain’s inherent features, such as zero-dependency on intermediaries, security, and cross-border transactions.
- However, despite these promises, hedge funds cannot tap into the entire cryptocurrency market’s potential due to liquidity fragmentation. As it currently stands, the cryptocurrency market has multiple siloed networks, with each chain holding untapped liquidity outside of its ecosystem.
Solution
- Hedge funds can leverage Analog’s time-based smart contracts to determine what is happening on each chain and automate transactions on multiple networks. For example, they could simultaneously invest in multiple low-risk protocols via smart contract-enabled transactions.
Yield Farming
Problem
- DeFi-based yield farming allows the cryptocurrency community to earn rewards with their assets whenever they stake or lend them on Blockchain platforms. Besides obtaining new tokens when the price of an asset increases, users can also receive other incentives. Presently, most yield farming protocols are Ethereum-based, which means users can only operate in a siloed liquidity environment.
- Besides a fragmented liquidity framework, most protocols have weak assumptions about time data, which is crucial in today’s highly competitive and fast-paced environments. For example, market makers cannot easily determine whether they should lock up their cash in liquidity pools to maximize their annual percentage rates (APRs) or annual percentage yield (APYs).
Solution
- The Analog network can help users determine the appropriate time to lock up their funds for maximum return on investment (ROI). For example, the Analog network can capture the correct signals on Aave and feed the signal to yEarn, allowing such to determine the appropriate time to invest on the platform.
Use Cases
Metaverse
The metaverse is no longer what it used to be, as depicted some years back. It has evolved into a disruptive ecosystem, providing new opportunities for gamers, artists, and creators by not just reimagining the entire digital assets economy but inventing it afresh. As a primary go-to platform for entertainment, workplace...
NFTs
Non-fungible tokens (NFTs) have quickly emerged as a new asset class because they prove ownership over an object that users would easily reproduce. Unlike traditional digital assets or artworks that are easier to duplicate, NFTs ascertain authenticity in the same way. Blockchain prevents...
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