Text AMA session dedicated to DeFi was held on Wednesday, November 9, with the participation of Sergey Shashev and Sergey Dzhurinsky, which was viewed by more than 200,000 people.
We have prepared a block of questions that were asked by users to the AMA session participants.
- Can you explain how DeFi creates value aside from “people are putting money in the box and it grows”?
When looking at DeFi, it's important to separate the common misconception from facts. The facts are, DeFi aims to provide transparency and alternative financial tools to the bank-controlled industry, which showcased success at attracting unbanked users to the financial market. Let's remember that approximately 1.7 billion adults are excluded from the formal financial system, with countries such as Morocco having over 70% of the population without access to any banking services, so DeFi has laid its utility out clearly. People placing money in protocols was created as an incentive for pools to meet exchange demands by increasing liquidity, not a TVL-inflating tactic, even though it was successful at doing so. There's still room for the sector to grow, it's just a matter of properly managing tactics that play in the favor of the user, incentivizing more activity in DeFi.
- How does Everscale plan to address the regulatory issues surrounding DeFi? Recently there has been talks on requiring KYC for users in DeFi before they can use the dApps. What are your views on this?
Everscale, as a Layer-1 blockchain, should be ready for any regulatory changes that could be implemented in different regions and countries. We look at different directions and are sure that regulation will be strengthened in the DeFi sector. For example, Sam Bankman-Fried suggested a strict regulatory framework regarding KYC in DeFi. The second direction is Digital identity, on-chain reputation in a more decentralized format. We understand that we need to remain flexible for different markets, where differing models may be implemented and we’d like to meet all regulatory frameworks where we conduct business. We’re a global blockchain, albeit, an Asian-centric one. Regardless, we need to be in full compliance with local laws.
Cycling back to digital identity, we have a grant campaign for digital identity and currently have a world class team working on a solution
- How does Everscale plan to address UX issues on Defi? You mention Bridge, Farming hub etc., so regular people find these extremely hard to comprehend, so what is your solution?
We are moving towards invisible bridge technology. Our goal is to get into the end services and eventually ensure the transfer of tokens from the Metamask to the Trustwallet with minimal interaction with our service system. As for the DeFi sector, the entire community of active DeFi users is about 1 million people worldwide. They do not care about interfaces. For ordinary people — integration into neobanks.
- Liquidity mining has sparked a growth in the DeFi market, but increased gas fees and network congestion limit users from taking advantage of DeFi's full potential. What is the most pressing issue that needs to be addressed? How does Everscale plan to provide a long-term remedy?
We have low TX fees so this shouldn’t be a problem for us. DeFi’s main issue is that liquidity should be actively used by exchange services and real users. If liquidity sits statically while being farmed, then the model is not sustainable and will not work over several years.
Due to Everscale’s linear scalability and dynamic sharding technology, there is no problem with regard to scalability and TX fees growth. This has been the primary reason behind the further growth potential that DEXs with order limits see exclusively on Everscale.
- Will you be able to handle the same amount of traffic that congest Ethereum daily?
Yes, because each wallet in Everscale is a smart contract, which is why we’ve fully solved the CBDC paradox resulting in the ability to handle a large number of transactions. Everscale also can also have flexible policies for different government, business, and social services. That is why the blockchain was built with the capacity to handle a large number of TPS.
Everscale has two interesting concepts — endless sharding and storage fees. In most current blockchains there is a problem of growing the blockchain size state. That is, blockchains that want to last more than 10-20 years, are forced to limit the pace of writing to the size state so that the size of the blockchain does not grow too quickly. Therefore, in "normal" blockchains that care about their future, for example, on Ethereum, users are forced to compete with each other for the right to record data to the blockchain state size at an auction, because Ethereum understands that it is impossible to write data to their blockchain state size faster than the storage of this data becomes cheaper, otherwise it will not be profitable for validators to store them in the future. Blockchains that do not care about their future, for example, Polygon or BSC with weak decentralization, or do not care what will happen there in 10 years, limit the recording rate much less, because users are important to them now, and they will think about the future later.
In Everscale, there is a complex but unique concept of storage fees — when each contract pays for its storage on the network, and therefore it makes no sense to limit the pace of recording to the network, because the contract pays for its storage for a while and then will be deleted. Therefore, we can provide recording to the network at a certain price, and users should not compete with each other for the right to record.
The second part is infinite sharding. Due to the fact that shards are added dynamically, we can process a potentially huge number of transactions per second, but of course it is not free, and they will be slower to complete. That is, with the addition of a large number of shards, the time to execute transactions increases, but the number of transactions per second is very large. This part is still in the process of being finalized, we need normal interaction between the workshops, I hope this will be implemented adequately.
As a result of connecting both of these concepts, we get a system that can process a huge number of transactions per second for a constant price (albeit with a slowdown in load peaks, but this slowdown concerns the execution time of one transaction, and not throughput), and at the same time remain efficient for decades while unlike rollups, remain decentralized.
- How do you convince people to lock up capital for DeFi in a relatively small marketcap chain? It seems like even Tezos has major issues with this, and they are much higher in marketcap than Everscale.
There are different categories of DeFi liquidity providers. There are large capital institutional liquidity providers (>1M USD), medium-capital (from 100K to 1M USD), and retail liquidity providers (<100K USD). Each one of these groups requires a different type of interaction, although all of them require the same stimuli. Regardless, in order to achieve large TVLs, a project requires a base from large institutional liquidity providers which places liquidity in the project and takes part in Everscale’s investment rounds as well as other ecosystem projects. As for midcap and retail users, we’ve developed a standard mechanic with locked tokens as well as unique mechanics on our DEX FlatQube related to burning and locking tokens which has been effective at attracting the interest of mid-capital and retail users.
- Despite remaining invested in a number of DeFi projects, how can something that is currently failing so much and constantly losing value (across so many different chains and players) end up pulling it out in the end?
DeFi is a technology for the people, by the people. When some event causes panic, people are quick to dump their support which leads to a project's certain failure with no bailout in sight. If we look at the traditional stock market, it had 5 large crashes with devastating economic repercussions, though the government was quick to bail them out. Crypto has also survived multiple crashes and recovered, albeit slowly due to the lack of centralized institutions supporting the technology, and its recovery was always organic. DeFi is still pushing to change the financial industry and reduce user costs. Of course, the current market conditions have reduced funding for the DeFi space, which slows down the current growth, but the long-term growth potential has stayed the same. There is still a lot of innovation left for the industry. Let's not forget that its primary focus is to provide transparency and integrate DeFi's benefits with the real world.
- “DeFi” is unequivocally a scam and just moves tokens from one place to another. if you sleep well at night and if so, how?
Truth is, DeFi has seen quite a few bad apples. However, you may be misled as to what DeFi is. DeFi is an umbrella term covering financial instruments that utilize decentralized technology, it is not a project. While the sector has acquired a bad reputation, it doesn’t mean that all DeFi is bad. When you look at a blockchain or a financial service, you may want to pay attention to what they’re selling. If they’re selling a token and promises of big gains, then you can tell what their intentions are. However, if they’re providing services with utility and an alternative option to traditional banking systems, your conclusion should be different. A healthy dose of skepticism is always good, but keep in mind that our goal as a community should be to educate users and provide alternative solutions to the financial oligopoly that owns the current financial market rather than looking at a whole sector with a closed mind.