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List of Polkadot Ecological DeFi Projects

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We are entering exciting times as more and more teams build DeFi on Polkadot, combining creativity with highly scalable, composable systems.

Original title: "A List of Polkadot Ecological DeFi Projects | Parity Official Summary"

Original source: PolkaWorld

This article is from an article on the Parity blog on December 10, 2020. The author is Parity Ecological Development Manager Peter Haymond.

Over the past few years, decentralized finance (DeFi) has become one of the most popular use cases in the crypto ecosystem. Simply put, DeFi can be described as financial software built using blockchain technology, which has the potential to make financial applications more open and accessible. At Parity, we’re seeing more and more DeFi teams building solutions using our blockchain development framework, Substrate, many of them for the Polkadot ecosystem.

DeFi stack

The DeFi technology stack enables teams to mix and match projects to build high-value applications. In simple terms, it can be thought of as three layers:

Application layer - what the user sees

Protocol layer —a specific set of rules

Basic layer —how to record value and data on the chain

Substrate lets developers build on each layer, which forms the backbone of Polkadot. Most DeFi teams are in the protocol layer, creating applications for users to interact with. Additionally, we’re starting to see some of these DeFi projects becoming vibrant ecosystems in their own right, reflecting one of Polkadot’s distinguishing characteristics, that Polkadot is an ecosystem of ecosystems.

DeFi on Polkadot

Here are a few DeFi teams in the Polkadot ecosystem and how they work at each layer.

Base Layer

Polkadot - a network Protocol that allows the transfer of arbitrary data across blockchains.

Protocol layer

Acala - DeFi hub and Decentralized stablecoin aUSD, aUSD allows users to send and receive USD across chains between any blockchain connected to Polkadot.

Stafi - Allows anyone who holds staked tokens to stake and earn replacement tokens (rTokens) to be traded and exchanged instantly without the need to Wait for the unbinding period to complete.

Bifrost - Parachain that allows users to deposit their staked tokens and mint vTokens for staking liquidity.

Equilibrium - A cross-chain money market that combines mutual lending with synthetic asset generation and trading.

Centrifuge - Allows businesses to leverage their accounts receivable and other future cash flows to obtain financing without trusting a middleman. They also offer the Centrifuge chain as a gateway for real-world assets into DeFi.

Zenlink - Cross-chain DEX network.

HydraDX - Enables frictionless liquidity for crypto assets.

Laminar - Decentralized finance platform built by Acala that powers synthetic assets, margin trading and money markets.

Application Layer

Polkaswap ;- Automated Market Maker (AMM) / Non-custodial exchange built by the Soramitsu team.

Sushiswap - A community run AMM.

Clover - Polkadot ecosystem DeFi platform powered by Bithumb.

Note: We mainly list the ones built for Polkadot Or projects aiming to be parachains. Some of them (such as SushiSwap) are built on top of parachains rather than Polkadot itself.

Composability

DeFi composability relies on shared security, i.e. all parachains connected to the Polkadot relay chain will benefit from the economic security provided by the relay chain validators. With other proof-of-stake systems, teams must find and bootstrap their own set of validators, increasing the barrier to entry and creating the need to establish trust between communicating chains. In contrast, interchain communication on Polkadot is not bound by the trust of the receiving chain in the sending chain. Trust is equal across all parachains, which makes it easier for developers and ensures a seamless experience for its users.

Polkadot uses cross-chain messaging (XCMP) for asynchronous communication between parachains. With XCMP, a chain can send a message that does not expect a response (but is guaranteed that the receiving chain will act on it), or it can send a message that expects some information in return (such as the return value of a function called on the receiving chain).

DeFi based on Ethereum and Bitcoin will be able to communicate within the Polkadot ecosystem using a bridge. For example, Chainsafe and Snowfork are developing trusted Ethereum bridges, and Interlay is building a low-trust Bitcoin bridge. Teams building on Polkadot can leverage XCMP and bridges to create novel, interoperable DeFi products.

What makes Polkadot unique

Polkadot has a powerful feature set that DeFi projects can leverage. By allowing independent blockchains to be developed, we could see some really interesting use cases.

Some teams choose to deploy their infrastructure on top of DeFi chains within the Polkadot ecosystem, rather than building Own local parachain. For example, Ren works with Acala by deploying its RenVM bridge module on the Acala network. Teams can choose to build on top of parachains by building runtime modules and then integrating with parachains, or by building on parachains such as Moonbeam, Plasm, or Edgeware that supports smart contracts based on Solidity or Ink!, etc. smart contracts). Going forward, we hope that some teams will continue to choose to build on top of existing platforms.

A unique subcategory within DeFi is liquidity collateral. Such applications allow anyone with staked tokens immediate access to liquidity without a lock-up period by acquiring tradable synthetic tokens during operation. This brings clear benefits to token holders, although it also introduces some centralization risks along the way. We have seen at least half a dozen projects building liquidity staking solutions locally or via bridges to other chains, making Polkadot possibly the most widely adopted blockchain ecosystem for liquidity staking.

DeFi projects in Polkadot are not only replicating existing concepts, but creating entirely new ones. An example is Acala's decentralized sovereign wealth fund (dSWF). The purpose of the dSWF is to make Acala economically sustainable to provide the funding needed for ongoing research and development and to pay for security on the Polkadot network. Acala’s stablecoin platform operates similarly to MakerDAO, requiring a stability fee to be paid when a collateralized debt position (CDP) is closed. After the CDP is closed, the accumulated stability fee will remain in the system treasury. These tokens will then be used to buy DOTs from the market and deposit them to replenish the DOT reserves held by dSWF, rather than burning native ACA tokens, whenever system profits exceed a certain threshold. This makes the dSWF a compelling and versatile system. You can learn more about dSWF here: https://medium.com/acalanetwork/acalas-decentralized-sovereign-wealth-fund-a-next-gen-dao-unforkable-aum-80f8c23d8f27.