DeFi Is Broken, And This Project Intends To Fix It

The decentralized finance industry is often seen as the “Wild West”, because it’s a space where anyone can launch a new token or dApp and make a bunch of promises, only to pull the rug from under their investor’s feet and leave them holding bags of useless tokens. 

At the same time, there are lots of serious projects that also come crashing down when they fall victim to smart contract vulnerabilities that drain their value. That’s exactly what happened to the Beanstalk protocol on April 18 2022, when an attacker exploited a one-day delay within its governance proposal contract to take out a flash loan. With this, the attacker managed to steal $181 million worth of DAI, USDC, USDT, BEAN and LUSD tokens, in what is the largest flash loan attack to date. 

Security is a big problem for DeFi and it desperately needs to be fixed if people are going to feel safe investing in its growing ecosystem. It’s not only investors but also governments that want these holes to be plugged. Unfortunately, with every new DeFi app that appears, we see new security risks and challenges arise. 

On top of the security concerns, it’s becoming clear that there’s an urgent need for greater regulatory clarity in DeFi. While many proponents of crypto recoil in horror at the mere idea, the majority of people are unlikely to want to get involved with the space unless it gets a government-backed seal of approval. 

Issues around scale and atomic composability are also holding DeFi back. A number of solutions that involve sharding – essentially, offloading transactions to sidechains to ease the pressure on the main chain – are being touted by major blockchains like Ethereum, Solana, and Avalanche, but these cause problems for one of DeFi’s key features. Atomic composability refers to the ability to stitch together multiple transactions on different dApps into a single atomic transaction, and it’s an essential capability. It’s what enables users to simultaneously borrow from one dApp and lend via another. This is easy enough when it’s done on a single blockchain, but when sharding is employed to enhance scalability, atomic composability breaks down. 

The Solution

Given the problems around DeFi, observers could be forgiven for thinking that it’s never going to go mainstream. The general consensus is that while DeFi has a wonderful vision, it hasn’t been able to execute on it thus far.

No one is to blame for the current state of affairs. DeFi remains an experimental place and the reality is that existing blockchains like Ethereum were never designed for it. What’s needed is a specialized layer-1 protocol that’s built specifically for DeFi, and that’s what RadFi is all about. 

RadFi is the ultimate vision of Radix, an emerging protocol that has been slowly building the foundation of the future of finance for the past nine years. 

“If you’re frustrated by frequent hacks, skeptical that other platforms can truly scale, and realize that your mom will never use MetaMask, then you’re ready for RadFi 2022,” the Radix team says.

Radix is a blockchain for DeFi that solves all of the major problems currently holding the space back. It’s unique in that it’s the only network protocol that relies on sharding to enable linear scalability without breaking atomic composability. In this way, Radix is able to meet the needs of an unlimited number of DeFi dApps, while allowing them to interoperate with one another without limits. 

Radix also solves questions around smart contract complexity and in the process vastly beefs up smart contract security. It does this by essentially doing away with Turing smart contracts altogether, replacing them with finite state machine components that can be pieced together like lego bricks to create highly functional dApps. 

Best of all, Radix also provides a strong incentive for developers to build a thriving ecosystem around DeFi. Most other protocols simply created a “developer fund” and hope to get a boostrapped ecosystem up and running, but that’s not the answer. Those funds quickly dry up and there’s no easy way to ensure developers are aligned with the goal of bringing long-term value to the ecosystem. Radix fixes this with its on-ledger developer royalty system, allowing developers to charge a fee for each component they add to its catalog. Each time the component is used in a transaction, the developer receives a small percentage in royalties, rewarding them for their contribution. 

As a result, RadFi becomes a decentralized marketplace for DeFi utility, encouraging its community of developers to create useful, reusable functions or fully-fledged dApps. It’s a key part of Radix’s vision of RadFi as the inevitable future of decentralized finance.