Lending is the major driver of the economy. Acknowledging this, the crypto industry is actively creating a fully automatic loan system built on blockchain. Let’s consider some ideas and implementations using the example of the Free TON project’s DeFi development.
About DeFi in a broad sense
DeFi (Decentralized Finance) is a system of smart contracts built on the principles of decentralized architecture to implement blockchain banking operations, bypassing third parties — banks, brokers, credit institutions.
Decentralized finance includes DEX exchanges, betting markets, and protocols for issuing synthetic assets and derivatives.
The DeFi implementation carries a number of risks: errors in the smart contract code and in the DefI structure itself. Of course, it all depends on the blockchain they are built on. To minimize the risks, the DeFi launch should be as thoughtful as possible. The most known DeFi projects are MakerDAO, Compound, AAVE.
At the moment, most DeFi projects are built on the Ethereum blockchain. But given the structure, minimal commissions and speed of the Free TON blockchain, if properly implemented, it could become a leader in the DeFi segment.
The Free TON-Ethereum bridge has been successfully operating on the Free TON blockchain for six months now, opening the doors to all DeFi projects for TON Crystal holders. You can surely use the bridge and enjoy the DeFi implemented on Ethereum, but what about the amount of its commissions, for which Vitalik Buterin’s blockchain is criticized? What if you need to transfer funds to several projects? Expensive!
What’s important in Free TON lending services?
Flash loans are among the most requested in the DeFi industry. They create artificial interest for many cryptocurrencies and increase their circulation. However, their implementation as it is done on Ethereum, is impossible on the Free TON blockchain. The community organized a “contest program” to find alternative solutions.
Free TON: Essays on Credit Services
Contest purpose and rewards
The DeFi subgovernance has launched a chain of contests dedicated to building lending services on the Free TON blockchain.
Due to the Free TON blockchain peculiarities, the asynchronous nature of block formation, there are some difficulties in implementing several DeFi aspects. The contest held in June was aimed at solving this problem.
Any member of the Free TON community who signed the “Declaration on Decentralization” could take part in it and compete for one of ten prizes (total prize pool of 40,000 TON Crystal).
Seven proposals were submitted in total, two of which received zero points and were not rewarded.
Contest winners. First place
Proposal #6 took the lead with 8.33 points and 10,000 TON Crystal to the wallet.
Participant @laugan proposed a flash loan concept similar to Teechain, based on TIP-6 tokens.
The idea is following: when issuing a loan, all parties to the transaction have parallel balances outside the data chain until the execution of the arrangements. And after confirming the execution of agreements, the balances would already be displayed on the blockchain. Thus, the authors intend to avoid “double spending”.
Because of the asynchronous block appearance, this was a sticking point in implementing such a service. The solution provided completely satisfied the jury.
Proposal #5 — 7.33 points and 8,500 TON Crystal to the balance.
The SVOI.DEV development team presented their vision for the lending services implementation. The work describes in some detail all the currently existing DeFi loan services. There is no space for flash loans, but it details the practical implementation of such services in Free TON on an existing DEX using the TIP-3 standard.
Proposal #4 — 4.5 points and 7,000 TON Crystal reward.
The third place is taken by a proposal based on meritocracy principles. Contest participants propose to implement a social rating system for the Free TON community.
Rating points can be earned by participating in community life, winning contests, and actively working in initiative groups of subgovernances.
The proposal describes in detail the technological aspects of the meritocratic principle implementation, but does not contain an analysis of existing lending services solutions and the possibility of their application in Free TON.
Proposal #2 — 4 points and 5,500 TON Crystal incentive.
Sergey Kalinin takes the fourth place — the head of the UAX product (stablecoin on Free TON — a digital analogue of the hryvnia) and an employee of the Kuna crypto exchange — Free TON validator.
The competitor proposed to implement loan possibilities on the Free TON blockchain, both on the security of TON Crystal and stablecoins.
The main criterion for choosing a stablecoin is its use in public blockchains and in commercial bank settlements.
The possibility of implementation has been worked out in detail. At the same time, solutions to eliminate risks have not been sufficiently developed.
Proposal #7 — 2 points and 4,000 TON Crystal
Another proposal based on a social rating that includes two aspects of community involvement:
- Contribution to community life. The number of posts on the forum, involvement in subgovernances, etc.
- Transaction history. The obligor’s creditworthiness is determined by an analysis of the amount and frequency of cash inflows. The lack of a clear technological base did not allow the proposal to take a higher place.
The “Free TON: Essays on Credit Services” contest was won by the one who analyzed the existing DeFi solutions and bet on the idea of flash loans in Free TON. And even though the number of contest prizes exceeded the number of participants, the goal was achieved — a concept was found. We are waiting for the next stage — the contest for implementation.