PLUGchain: DeFi’s Problems and Breakthroughs
At present, there have been two problems in the DeFi market. One is the continuity of capital utilization, and the other is the risk of leveraged capital lending for the funder. There are few major innovations in DeFi nowadays. People resort to every conceivable means to compete for limited TVL. Wherever there is traffic, people add a corresponding “patch”, such as “deposit money to earn interest”, “secondary financing” etc., somehow, people start to go to any length to get what they want, fast and greedily.
No continuity of capital utilization results in the fact that high-leverage trading can only exist in terminal projects. Leverage trading can only exist in the exchange. While for other types of leverage, there is not enough funds to make up for the depositor’s interest rate. This article only refers to trading type leverage.
How to deploy perpetual contracts or high-leverage exchanges on the chain?
There are many aspects to be considered, similar to the leverage of a centralized exchange, however, there are many very tangled problems due to decentralization. For example, whether the order book mode shall be used on the chain. If it is used, the delay on the chain is extremely unfavorable for market makers, although it can be used for mainstream currencies because of sufficient transaction depth. For other transactions, there will be the problem of insufficient depth which will result in the risk of partial loss of deposit funds, not considering high risk caused by issues like transaction congestion etc.
To understand whether a project has a future and whether it has real value, two points need to be paid attention to. One is whether the project can solve the problems that others can’t solve in the current market by technique upgrades. The other is whether it optimizes the application scenarios or effectively improve the user experience. A more convenient product experience is the basis for maintaining user stickiness. For example, Acala in the Polkadot cross-chain ecosystem, which has just obtained the Web3 Grant, have followed multiple product routes to jointly advance, and build specific business integrations based on user scenarios and “business journeys.” As Polkadot’s leading project, Acala is already well understood by everyone.
So does the business logic mentioned above hold true?
Cross-Chain, New Lending, Perpetual Contracts, Leveraged Trading: Dividing problems and analyzing breakthroughs.
Cross-Chain (Deep Sharing and Real Bridge)
Blockchain itself has the attribute of “information islands”, which means information between each main chain cannot be directly communicated. The demand for off-chain and on-chain intercommunication gave birth to the oracle machine, while the intercommunication between different main chains requires cross-chain.
Cross chain is one of the key focus that PLUGchain is focusing on.
Cross-chain is the chain that connects the main chains. If one currency becomes hot in the market, and it can only be traded in a single chain, for example, ERC-20, users on other chains can only choose to abandon the current product they use and choose a product where they can trade the hot currency instead.
Deep sharing and bridge are two important parts of cross-chain. Deep sharing represents whether users can get the most friendly transaction price. Some tokens in the market can be traded on different independent chains. Transactions on different independent chains represent ordinary spot transactions. The counterparty you face is on a single chain, which is BSC chain. This means there will be a state where the transaction cannot be executed immediately for large-amount transactions and or when the chain is congested. For leveraged transaction, the violent market fluctuations will cause “a queue to death” because whether making up the margin or performing other operations need for confirmation on the chain.
The reason why cross-chain has become a hot issue in the market is that the congestion problem on the ERC-20 chain under high volatility market has never been effectively solved. In-depth aggregation itself is also one of the directions that has gained much attention in the market. Depth means users can get the best transaction costs and risk resistance can be increased.
The concept of bridge itself is a description of cross-chain. In this article, bridge is only regarded as a pure asset class. There are two types of effective schemes for asset cross-chain. At present, the most widely used scheme in the market is still the first type, which is a pure digital mapping scheme. The transaction is reached by trading the products mapped and anchored on other chains, but the asset itself is not actually traded.There would be some risk. Because the purchased product is only a digital mapping, no one knows whether the mapped product has security issues or whether the funds will be misappropriated. Mapping digital currency through digital mapping is indeed the simplest and directest solution, however, the risk is unknown.
The concept of a real bridge is to complete the transaction in the way of asset migration, rather than through digital mapping. That is, when a user trades a product that is not on the chain, he is not trading the mapping product but to migrate his funds and exchange the assets needed via real transaction, and then map the exchanged assets. Although there is no huge difference between real bridge and digital mapping, the former enables real assets transactions. When the transaction volume is sufficient, the internal hedging of the fund pool can save the handling fee and effectively improve the transaction security.
The increase in security will inevitably bring about an increase in transaction costs, which is a manifestation of the market progress as well. When the transaction cost and security reach a balance, the mature cross-chain transaction is formed. Users with a large amount of transaction funds need more security, while others focus on reducing transaction costs. And it is necessary to simplify current transaction steps. Excessive transaction steps and learning costs will inevitably be quickly eliminated by the market.