Scalability and Privacy Become Central DeFi Themes
The Intelligent Insurer #60: Interoperable, scalable, and private DeFi protocols experience rising interest
We are reaching a point where DeFi is no longer a mere passing trend. More mainstream DeFi users are leveraging the benefits provided by several protocols to set themselves up for financial freedom. These DeFi projects satisfy the need for more privacy, speedy transactions, wider markets, lower costs, and more.
This week's edition of the Intelligent Insurer will focus on three DeFi projects that are satisfying the aforementioned needs on a wider scale. We'll also consider how investors can continue to safeguard their assets as vulnerabilities increase. As always, we would first like to share some exciting updates from our development team.
Insured Finance software development update
We made significant progress over the past week, thanks to the stellar efforts made by our dev team. The code audit is almost complete as we tested for unchecked external calls, outdated compiler version, and transaction ordering dependence. We are happy to announce that we discovered no vulnerabilities in them. The remaining audit will be completed in the coming weeks, ahead of our highly anticipated mainnet launch.
We have also finalized the user interaction and wireframes for the next insurance protocol, the INFI Smart Contract Coverage, and are currently refining all the designs. Another significant next step for us is a DAO. Hence, we have created the INFI DAO. This will give users staking and voting abilities on the platform. We are currently creating the framework needed to ensure that users get the most benefit from our next-gen digital asset insurance platform.
At this point our preference is for Open Zeppelin Wizard. Currently, we’re implementing a hook to give INFI stakers wrapped INFI. Open Zeppelin Wizard can be used to implement voting logic and we’re evaluating voting logic currently. To implement voting escalation, we plan to design custom logic since Open Zeppelin’s Proposer function is unsuited to our needs. We will also design a custom voting function to validate voter addresses.
As we remain committed to providing the best services to our users, we are constantly making feature improvements. Some of the tasks on hand include:
Researching tools and frameworks that accelerate the development of smart contract failure
Finalizing the designs for other parts of smart contract failure coverage
Continuing code audit ahead of mainnet launch
Testing smart contract vulnerabilities via the remaining classic attack vectors
In the coming week, we will remain focused on auditing our React app, Coin API, and unit testing smart contract functionality. We also plan to review the proposal for smart contract failure coverage. We are eager to offer our users a digital asset insurance platform that prioritizes their security.
Decentralized savings on Anchor Protocol
Anchor Protocol is creating an accessible and easy-to-use savings ecosystem built on the Terra network. The protocol offers a robust savings, lending, and a borrowing platform for DeFi users. Borrowers gain easy access to collateral-backed stablecoin loans and depositors earn an attractive yield of up to 19.5%.
When investors deposit their Terra stablecoins on the protocol, they receive newly minted Anchor Terra (aTerra) tokens and the deposits are pooled and lent out to borrowers. The aTerra tokens represent depositors' stakes in the pool and can be withdrawn along with the accrued interest.
To borrow stablecoins from the protocol's money market, borrowers must create bonded assets (bAssets) with their collateral. The bAssets are different from staked assets. Borrowers still maintain their liquidity and fungibility. Borrowers can deposit their LUNA to receive bLUNA and borrow up to 60% of their collateral. However, they are required to maintain a loan-to-value (LVR) below the set maximum as anything above it will automatically be subject to liquidation.
Anchor Protocol increases the demand for Terra-based stablecoins and attracts investors looking for high yield investments with low volatility. ANC, the protocol's native token, is distributed as a borrower incentive. It also serves as the protocol's governance token, giving holders the power to vote on decisions that can affect the future of the protocol. Despite being a relatively new entrant in the market, Anchor Protocol has managed to attract several investors. The protocol currently has a TVL of $15.12 billion.
(Source: DeFi Llama)
Increased scalability and interoperability on Polygon
As the Ethereum network grows more popular, transactions on the network become slower with exorbitant gas fees. To improve Ethereum's scalability and interoperability with other networks, the Polygon Network was launched.
Polygon is a layer 2 or secondary scaling solution on the Ethereum blockchain that allows for speedy transactions and low fees. The protocol touts itself as "Ethereum's Internet of Blockchains" as it has provided a platform equipped with advanced tools to help developers build and launch their own sovereign blockchains and decentralized applications (dApps). This allows multiple blockchains to seamlessly interact with each other and share data.
Polygon employs the proof-of-stake (PoS) consensus mechanism, zk rollups, optimistic rollups, and plasma sidechains, all geared towards improving scalability and interoperability. In contrast to Ethereum, which processes roughly 17 transactions per second, Polygon can process 65,000 transactions per second with extremely low fees.
Polygon fully supports the Ethereum Virtual Machine (EVM), Ethereum’s blockchain-based software that allows developers to build dApps. This feature makes Polygon accessible and intuitive to use by developers from the Ethereum community. The solutions offered by Polygon caters to some of the most pressing issues of Ethereum and offers the infrastructure for a network of diverse and self-sovereign blockchains.
The network's native cryptocurrency, MATIC is used for fees, staking, and more. With a fixed supply of 10 billion tokens, MATIC is currently the 17th largest cryptocurrency in the market. At the time of writing, MATIC is trading at $1.67.
Improved transaction privacy on Tornado Cash
A majority of the existing digital assets have been found to promote only pseudonymity, not anonymity. Hence, they leave crumbs on the blockchain after a transaction and these crumbs make it possible to tie one's identity to a wallet address.
To provide more privacy, several privacy-focused coins have been launched. However, since billions of funds have already been invested on-chain, an elegant solution geared towards ensuring that online transactions remain private was introduced — Tornado Cash.
Tornado Cash is a non-custodial privacy solution for the Ethereum network based on zkSNARKs technology. Utilizing the zero-knowledge proof ensures that users can verify their identities without exchanging passwords.
The protocol acts as a complex token mixer, utilizing smart contracts that accept deposits made in ETH and are subsequently withdrawn to other wallet addresses. Since the withdrawal is typically made from the Tornado's smart contract liquidity pools, there is no way of tracing the assets back to the original sender.
To safely verify the owner of the assets transferred, Tornado Cash creates a secret hash, known as a commitment, whenever a user deposits digital assets. The hash is sent to the smart contracts, along with the deposit, and is requested whenever the owner wants to make a withdrawal. This confirms the identity of the assets' owner while maintaining anonymity.
Tornado Cash is governed by an ERC-20 standard token, TORN, which powers every activity on the protocol. It has a fixed supply of 10 million TORN tokens. The protocol currently has a TVL of over $570 million.
(Source: DeFi Llama)
DeFi expansion shows no sign of stopping
With the current scope of the DeFi space, it is hard to imagine that this market only emerged less than three years ago. There are thousands of protocols offering diverse solutions to traditional financial systems.
However, the broad scope of this industry does not reduce the risks involved. Some DeFi protocols and their native tokens were launched less than two years ago, which is not enough time to determine their long-term sustainability. Therefore, investors should take care to invest no more than they are willing to lose, so that in the event of any unprecedented events, they do not lose all their life savings.
Additionally, investors should bear in mind that criminals are also using private DeFi protocols to cover their tracks, making it nearly impossible to catch them. Hence, they must add extra protection for their digital assets using insurance products, such as those offered by Insured Finance. These insurance solutions give investors the confidence to actively participate in DeFi markets, knowing that their digital assets are protected.
About Insured Finance
Insured Finance is a decentralized, peer-to-peer insurance marketplace. Users can request customized insurance on a wide variety of digital assets, thereby ensuring full protection. Those fulfilling requests can earn premiums and earn a competitive return on their capital. Claims are fully collateralized and settled instantly.