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Ride the Wave: The Present & Future of Decentralized Liquidity — OKExDeFi Roundtable
At OKEx, we are constantly looking to the future — and we believe that means DeFi.
To spread the message, our CEO, Jay Hao, is holding a new virtual #OKExDeFi roundtable talk series with leaders from various industries to discuss their progress, insights and future plans in Defi.
In this roundtable, Jay interviews Nate Hindman, the head of growth at Bancor, and Jay Zhou, the CMO at Loopring. Bancor is an on-chain liquidity protocol that enables automated, decentralized token exchanges on Ethereum and across blockchains. Loopring is an Ethereum ZK-Rollup exchange and payment protocol.
Here are the key highlights from the roundtable.
Jay Hao: Security concerns still remain an obstacle for the widespread adoption of decentralized exchanges, as reflected by the recent $500,000 exploit of Balancer.
Like centralized exchanges, how can DEXs give users more confidence in preventing hacks — from a technical perspective?
Nate: So, I'd like to think there's the concept of antifragility — the idea that the more you stress something and attack it, the stronger it becomes. It heals from these attacks and the stronger it becomes. So, I think we're still very much in an antifragile space with DeFi. You'll notice that, whenever there's a smart contract vulnerability — unlike centralized institutions or traditional financial institutions — there's kind of limited transparency into what really caused the problem and how we can prevent it in the future.
In the DeFi space, since most of these products are launching open-source, it's really in the ethos of the industry that, whenever there's a vulnerability, everybody knows exactly what happened. You can sort of track it in real-time, and there's tons of analysis. I think this is part of the process of becoming antifragile. I basically see these things happen in real-time, know exactly how to prevent them, or reduce the risk in the future. And all of a sudden, every type of DeFi project can adapt and change their systems to ensure that they're protected against these risks in the future.
At the same time, no audit or no amount of bug bounties is 100% bulletproof. I think the noncustodial nature of a lot of these projects, for the traders, is really crucial — that you're not giving up ownership of your tokens. And if you're acting as a liquidity provider, you know you're doing so in a way that you fully know the risks and you can measure them as a user. I think the transparency and the open-source nature allows users who are providing liquidity and locking up their tokens in these smart contracts to really measure those in a better way.
Jay Zhou: Speaking from a project's perspective, our takeaway is that we spent a lot of money on security auditing to improve our smart contact security. We do invite external auditors to come to review our smart contracts, and we also give a lot of bounty programs to the communities and invite all of those talented people to come to review our smart contracts. That's our takeaway. I think there are not many things we can do in this space right now.
Jay Hao: At present, most of the DeFi applications are built on Ethereum. Many DeFi lovers are anticipating Ethereum 2.0 will enhance its scalability and security.
In what way will the launch of Eth2 help the development of decentralized exchanges?
Jay Zhou: To be honest, Ethereum 2.0 still has a long way to go. Even if you follow Vitalik's Twitter, you can see he constantly encourages people to use ZK-Rollup right now because Eth2 won't come anytime soon — it may take another three to five years for practical users' taste. Right now, there's only the Rollup scaleup solution for people to use. Right now, ZK-Rollup is one of the best ways for you to choose to scale up because it won't give up any security for your project. The zero-knowledge solution is a layer two-scale solution on Ethereum, allowing higher throughput and transactions per second and much lower costs, without sacrificing securities. Loopring and Metlab already have ZK-Rollup that allows users to process transactions instantly. And, as long as Ethereum exists, all your assets are completely in your control. Right now, it's already a thousand times faster and cheaper than the normal layer-one decentralized application.
Nate: I think we feel somewhat similarly — we're very excited for Eth2 to dramatically bring down costs and to dramatically increase throughput, but we're not waiting around for that to happen. We're actively looking into integrating these layer-two solutions to bring down those costs before Eth2 and very excited for Eth2 to finally get delivered — but, you know, like we've said throughout this whole conversation in the past few weeks, gas cost really threatened DEXs and DeFi applications, both from a trader's perspective and also from a yield farmer's perspective. As a liquidity provider, when you're trying to optimize and, you know, bounce yield between different protocols, you need to ensure that your returns aren't getting chopped in half by the gas cost. So, we're excited for Eth2, but we're not holding our breath — and actively integrating different solutions and optimizing our own smart contracts to really reduce gas consumption.
Jay Hao: Cool. Some people may think centralized exchanges are only the direct competitors of DEXs. I don't think so, and our relationship is more like partnerships right now.
What do DeFi projects hope OKEx will do to make the DeFi space more attractive to centralized players?
Nate: I think that centralized exchanges are natural players to integrate a lot of these DeFi protocols. I think we're already starting to see centralized exchanges building interfaces that allow users to stake their token — you know, when I buy my tokens on a centralized exchange, why not stake them as well? If I buy a DeFi token, and I want to put it to work and generate yield, it seems like centralized exchange interfaces are really natural places to do that. So, if I want to stake my token inside automated market makers to generate yield and, if I can do that within my OKEx dashboard, I think that would be really exciting. A user doesn't have to leave the OKEx platform to do that. So, that's my hope — that, with all these different DeFi assets, the level of innovation is really off the charts in terms of yield farming and attracting yield.
I think, potentially, some of the DeFi protocols are really less focused and have less capacity to build these extremely smooth user experiences, and it feels like there's a natural fit for those user experiences within centralized exchange interfaces. So, I hope that those types of partnerships will increasingly emerge.
Jay Zhou: Besides that part, in my opinion, I also hope the OKEx can keep bringing more users from the real world, and so they can bring access from the real world to cryptocurrencies. That will increase the entire crypto ecosystem and educate them about cryptocurrency — because, we all know, people don't go from zero to DeFi straight away. Most people are from zero to cryptocurrency to DeFi. DeFi is more for advanced users. If OKEx can bring more people into cryptocurrency, that means we have more ways to educate people and to upgrade to DeFi users.
Jay Hao: One final question: Suggest one word to describe the future of DeFi. And why?
Nate: My one word is "access" — and that's not only "access" to the services themselves. So, I'm not only referring to it being easier to trade, for instance, but "access" in terms of ownership. All of a sudden, many users, — unaffiliated users — can own a small piece or a big piece of a DeFi protocol and participate in governance and generate a share of that protocol's earnings, which have been fully on-chain in a transparent manager. And this sort of distribution — a protocol revenue — requires you to be a fully on-chain and transparent and decentralized protocol. So, the access to ownership, among an unlimited number of unaffiliated users, I think is an extremely powerful concept, and something we will only see an increase in over the months and years to come.
Jay Zhou: Maybe I can say "leverage" because DeFi now can help us create leverage in a much easier way.
Editor's note: This text has been slightly condensed and edited for clarity.
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