Reposting after was mistakenly removed by mods (since resolved - Thanks)submitted by xSeq22x to CryptoCurrency [link] [comments]
A frequent question I see being asked is how Cosmos, Polkadot and Avalanche compare? Whilst there are similarities there are also a lot of differences. This article is not intended to be an extensive in-depth list, but rather an overview based on some of the criteria that I feel are most important.
For better formatting see https://medium.com/ava-hub/comparison-between-avalanche-cosmos-and-polkadot-a2a98f46c03b
CosmosCosmos is a heterogeneous network of many independent parallel blockchains, each powered by classical BFT consensus algorithms like Tendermint. Developers can easily build custom application specific blockchains, called Zones, through the Cosmos SDK framework. These Zones connect to Hubs, which are specifically designed to connect zones together.
The vision of Cosmos is to have thousands of Zones and Hubs that are Interoperable through the Inter-Blockchain Communication Protocol (IBC). Cosmos can also connect to other systems through peg zones, which are specifically designed zones that each are custom made to interact with another ecosystem such as Ethereum and Bitcoin. Cosmos does not use Sharding with each Zone and Hub being sovereign with their own validator set.
For a more in-depth look at Cosmos and provide more reference to points made in this article, please see my three part series — Part One, Part Two, Part Three
(There's a youtube video with a quick video overview of Cosmos on the medium article - https://medium.com/ava-hub/comparison-between-avalanche-cosmos-and-polkadot-a2a98f46c03b)
PolkadotPolkadot is a heterogeneous blockchain protocol that connects multiple specialised blockchains into one unified network. It achieves scalability through a sharding infrastructure with multiple blockchains running in parallel, called parachains, that connect to a central chain called the Relay Chain. Developers can easily build custom application specific parachains through the Substrate development framework.
The relay chain validates the state transition of connected parachains, providing shared state across the entire ecosystem. If the Relay Chain must revert for any reason, then all of the parachains would also revert. This is to ensure that the validity of the entire system can persist, and no individual part is corruptible. The shared state makes it so that the trust assumptions when using parachains are only those of the Relay Chain validator set, and no other. Interoperability is enabled between parachains through Cross-Chain Message Passing (XCMP) protocol and is also possible to connect to other systems through bridges, which are specifically designed parachains or parathreads that each are custom made to interact with another ecosystem such as Ethereum and Bitcoin. The hope is to have 100 parachains connect to the relay chain.
For a more in-depth look at Polkadot and provide more reference to points made in this article, please see my three part series — Part One, Part Two, Part Three
(There's a youtube video with a quick video overview of Polkadot on the medium article - https://medium.com/ava-hub/comparison-between-avalanche-cosmos-and-polkadot-a2a98f46c03b)
AvalancheAvalanche is a platform of platforms, ultimately consisting of thousands of subnets to form a heterogeneous interoperable network of many blockchains, that takes advantage of the revolutionary Avalanche Consensus protocols to provide a secure, globally distributed, interoperable and trustless framework offering unprecedented decentralisation whilst being able to comply with regulatory requirements.
Avalanche allows anyone to create their own tailor-made application specific blockchains, supporting multiple custom virtual machines such as EVM and WASM and written in popular languages like Go (with others coming in the future) rather than lightly used, poorly-understood languages like Solidity. This virtual machine can then be deployed on a custom blockchain network, called a subnet, which consist of a dynamic set of validators working together to achieve consensus on the state of a set of many blockchains where complex rulesets can be configured to meet regulatory compliance.
Avalanche was built with serving financial markets in mind. It has native support for easily creating and trading digital smart assets with complex custom rule sets that define how the asset is handled and traded to ensure regulatory compliance can be met. Interoperability is enabled between blockchains within a subnet as well as between subnets. Like Cosmos and Polkadot, Avalanche is also able to connect to other systems through bridges, through custom virtual machines made to interact with another ecosystem such as Ethereum and Bitcoin.
For a more in-depth look at Avalanche and provide more reference to points made in this article, please see here and here
(There's a youtube video with a quick video overview of Avalanche on the medium article - https://medium.com/ava-hub/comparison-between-avalanche-cosmos-and-polkadot-a2a98f46c03b)
Comparison between Cosmos, Polkadot and AvalancheA frequent question I see being asked is how Cosmos, Polkadot and Avalanche compare? Whilst there are similarities there are also a lot of differences. This article is not intended to be an extensive in-depth list, but rather an overview based on some of the criteria that I feel are most important. For a more in-depth view I recommend reading the articles for each of the projects linked above and coming to your own conclusions. I want to stress that it’s not a case of one platform being the killer of all other platforms, far from it. There won’t be one platform to rule them all, and too often the tribalism has plagued this space. Blockchains are going to completely revolutionise most industries and have a profound effect on the world we know today. It’s still very early in this space with most adoption limited to speculation and trading mainly due to the limitations of Blockchain and current iteration of Ethereum, which all three of these platforms hope to address. For those who just want a quick summary see the image at the bottom of the article. With that said let’s have a look
CosmosEach Zone and Hub in Cosmos is capable of up to around 1000 transactions per second with bandwidth being the bottleneck in consensus. Cosmos aims to have thousands of Zones and Hubs all connected through IBC. There is no limit on the number of Zones / Hubs that can be created
PolkadotParachains in Polkadot are also capable of up to around 1500 transactions per second. A portion of the parachain slots on the Relay Chain will be designated as part of the parathread pool, the performance of a parachain is split between many parathreads offering lower performance and compete amongst themselves in a per-block auction to have their transactions included in the next relay chain block. The number of parachains is limited by the number of validators on the relay chain, they hope to be able to achieve 100 parachains.
AvalancheAvalanche is capable of around 4500 transactions per second per subnet, this is based on modest hardware requirements to ensure maximum decentralisation of just 2 CPU cores and 4 GB of Memory and with a validator size of over 2,000 nodes. Performance is CPU-bound and if higher performance is required then more specialised subnets can be created with higher minimum requirements to be able to achieve 10,000 tps+ in a subnet. Avalanche aims to have thousands of subnets (each with multiple virtual machines / blockchains) all interoperable with each other. There is no limit on the number of Subnets that can be created.
ResultsAll three platforms offer vastly superior performance to the likes of Bitcoin and Ethereum 1.0. Avalanche with its higher transactions per second, no limit on the number of subnets / blockchains that can be created and the consensus can scale to potentially millions of validators all participating in consensus scores ✅✅✅. Polkadot claims to offer more tps than cosmos, but is limited to the number of parachains (around 100) whereas with Cosmos there is no limit on the number of hubs / zones that can be created. Cosmos is limited to a fairly small validator size of around 200 before performance degrades whereas Polkadot hopes to be able to reach 1000 validators in the relay chain (albeit only a small number of validators are assigned to each parachain). Thus Cosmos and Polkadot scores ✅✅
CosmosTendermint consensus is limited to around 200 validators before performance starts to degrade. Whilst there is the Cosmos Hub it is one of many hubs in the network and there is no central hub or limit on the number of zones / hubs that can be created.
PolkadotPolkadot has 1000 validators in the relay chain and these are split up into a small number that validate each parachain (minimum of 14). The relay chain is a central point of failure as all parachains connect to it and the number of parachains is limited depending on the number of validators (they hope to achieve 100 parachains). Due to the limited number of parachain slots available, significant sums of DOT will need to be purchased to win an auction to lease the slot for up to 24 months at a time. Thus likely to lead to only those with enough funds to secure a parachain slot. Parathreads are however an alternative for those that require less and more varied performance for those that can’t secure a parachain slot.
AvalancheAvalanche consensus scan scale to tens of thousands of validators, even potentially millions of validators all participating in consensus through repeated sub-sampling. The more validators, the faster the network becomes as the load is split between them. There are modest hardware requirements so anyone can run a node and there is no limit on the number of subnets / virtual machines that can be created.
ResultsAvalanche offers unparalleled decentralisation using its revolutionary consensus protocols that can scale to millions of validators all participating in consensus at the same time. There is no limit to the number of subnets and virtual machines that can be created, and they can be created by anyone for a small fee, it scores ✅✅✅. Cosmos is limited to 200 validators but no limit on the number of zones / hubs that can be created, which anyone can create and scores ✅✅. Polkadot hopes to accommodate 1000 validators in the relay chain (albeit these are split amongst each of the parachains). The number of parachains is limited and maybe cost prohibitive for many and the relay chain is a ultimately a single point of failure. Whilst definitely not saying it’s centralised and it is more decentralised than many others, just in comparison between the three, it scores ✅
CosmosTendermint consensus used in Cosmos reaches finality within 6 seconds. Cosmos consists of many Zones and Hubs that connect to each other. Communication between 2 zones could pass through many hubs along the way, thus also can contribute to latency times depending on the path taken as explained in part two of the articles on Cosmos. It doesn’t need to wait for an extended period of time with risk of rollbacks.
PolkadotPolkadot provides a Hybrid consensus protocol consisting of Block producing protocol, BABE, and then a finality gadget called GRANDPA that works to agree on a chain, out of many possible forks, by following some simpler fork choice rule. Rather than voting on every block, instead it reaches agreements on chains. As soon as more than 2/3 of validators attest to a chain containing a certain block, all blocks leading up to that one are finalized at once.
If an invalid block is detected after it has been finalised then the relay chain would need to be reverted along with every parachain. This is particularly important when connecting to external blockchains as those don’t share the state of the relay chain and thus can’t be rolled back. The longer the time period, the more secure the network is, as there is more time for additional checks to be performed and reported but at the expense of finality. Finality is reached within 60 seconds between parachains but for external ecosystems like Ethereum their state obviously can’t be rolled back like a parachain and so finality will need to be much longer (60 minutes was suggested in the whitepaper) and discussed in more detail in part three
AvalancheAvalanche consensus achieves finality within 3 seconds, with most happening sub 1 second, immutable and completely irreversible. Any subnet can connect directly to another without having to go through multiple hops and any VM can talk to another VM within the same subnet as well as external subnets. It doesn’t need to wait for an extended period of time with risk of rollbacks.
ResultsWith regards to performance far too much emphasis is just put on tps as a metric, the other equally important metric, if not more important with regards to finance is latency. Throughput measures the amount of data at any given time that it can handle whereas latency is the amount of time it takes to perform an action. It’s pointless saying you can process more transactions per second than VISA when it takes 60 seconds for a transaction to complete. Low latency also greatly increases general usability and customer satisfaction, nowadays everyone expects card payments, online payments to happen instantly. Avalanche achieves the best results scoring ✅✅✅, Cosmos with comes in second with 6 second finality ✅✅ and Polkadot with 60 second finality (which may be 60 minutes for external blockchains) scores ✅
CosmosEvery Zone and Hub in Cosmos has their own validator set and different trust assumptions. Cosmos are researching a shared security model where a Hub can validate the state of connected zones for a fee but not released yet. Once available this will make shared security optional rather than mandatory.
PolkadotShared Security is mandatory with Polkadot which uses a Shared State infrastructure between the Relay Chain and all of the connected parachains. If the Relay Chain must revert for any reason, then all of the parachains would also revert. Every parachain makes the same trust assumptions, and as such the relay chain validates state transition and enables seamless interoperability between them. In return for this benefit, they have to purchase DOT and win an auction for one of the available parachain slots.
However, parachains can’t just rely on the relay chain for their security, they will also need to implement censorship resistance measures and utilise proof of work / proof of stake for each parachain as well as discussed in part three, thus parachains can’t just rely on the security of the relay chain, they need to ensure sybil resistance mechanisms using POW and POS are implemented on the parachain as well.
AvalancheA subnet in Avalanche consists of a dynamic set of validators working together to achieve consensus on the state of a set of many blockchains where complex rulesets can be configured to meet regulatory compliance. So unlike in Cosmos where each zone / hub has their own validators, A subnet can validate a single or many virtual machines / blockchains with a single validator set. Shared security is optional
ResultsShared security is mandatory in polkadot and a key design decision in its infrastructure. The relay chain validates the state transition of all connected parachains and thus scores ✅✅✅. Subnets in Avalanche can validate state of either a single or many virtual machines. Each subnet can have their own token and shares a validator set, where complex rulesets can be configured to meet regulatory compliance. It scores ✅ ✅. Every Zone and Hub in cosmos has their own validator set / token but research is underway to have the hub validate the state transition of connected zones, but as this is still early in the research phase scores ✅ for now.
CosmosThe Cosmos project started in 2016 with an ICO held in April 2017. There are currently around 50 projects building on the Cosmos SDK with a full list can be seen here and filtering for Cosmos SDK . Not all of the projects will necessarily connect using native cosmos sdk and IBC and some have forked parts of the Cosmos SDK and utilise the tendermint consensus such as Binance Chain but have said they will connect in the future.
PolkadotThe Polkadot project started in 2016 with an ICO held in October 2017. There are currently around 70 projects building on Substrate and a full list can be seen here and filtering for Substrate Based. Like with Cosmos not all projects built using substrate will necessarily connect to Polkadot and parachains or parathreads aren’t currently implemented in either the Live or Test network (Kusama) as of the time of this writing.
AvalancheAvalanche in comparison started much later with Ava Labs being founded in 2018. Avalanche held it’s ICO in July 2020. Due to lot shorter time it has been in development, the number of projects confirmed are smaller with around 14 projects currently building on Avalanche. Due to the customisability of the platform though, many virtual machines can be used within a subnet making the process incredibly easy to port projects over. As an example, it will launch with the Ethereum Virtual Machine which enables byte for byte compatibility and all the tooling like Metamask, Truffle etc. will work, so projects can easily move over to benefit from the performance, decentralisation and low gas fees offered. In the future Cosmos and Substrate virtual machines could be implemented on Avalanche.
ResultsWhilst it’s still early for all 3 projects (and the entire blockchain space as a whole), there is currently more projects confirmed to be building on Cosmos and Polkadot, mostly due to their longer time in development. Whilst Cosmos has fewer projects, zones are implemented compared to Polkadot which doesn’t currently have parachains. IBC to connect zones and hubs together is due to launch Q2 2021, thus both score ✅✅✅. Avalanche has been in development for a lot shorter time period, but is launching with an impressive feature set right from the start with ability to create subnets, VMs, assets, NFTs, permissioned and permissionless blockchains, cross chain atomic swaps within a subnet, smart contracts, bridge to Ethereum etc. Applications can easily port over from other platforms and use all the existing tooling such as Metamask / Truffle etc but benefit from the performance, decentralisation and low gas fees offered. Currently though just based on the number of projects in comparison it scores ✅.
CosmosCosmos enables permissioned and permissionless zones which can connect to each other with the ability to have full control over who validates the blockchain. For permissionless zones each zone / hub can have their own token and they are in control who validates.
PolkadotWith polkadot the state transition is performed by a small randomly selected assigned group of validators from the relay chain plus with the possibility that state is rolled back if an invalid transaction of any of the other parachains is found. This may pose a problem for enterprises that need complete control over who performs validation for regulatory reasons. In addition due to the limited number of parachain slots available Enterprises would have to acquire and lock up large amounts of a highly volatile asset (DOT) and have the possibility that they are outbid in future auctions and find they no longer can have their parachain validated and parathreads don’t provide the guaranteed performance requirements for the application to function.
AvalancheAvalanche enables permissioned and permissionless subnets and complex rulesets can be configured to meet regulatory compliance. For example a subnet can be created where its mandatory that all validators are from a certain legal jurisdiction, or they hold a specific license and regulated by the SEC etc. Subnets are also able to scale to tens of thousands of validators, and even potentially millions of nodes, all participating in consensus so every enterprise can run their own node rather than only a small amount. Enterprises don’t have to hold large amounts of a highly volatile asset, but instead pay a fee in AVAX for the creation of the subnets and blockchains which is burnt.
ResultsAvalanche provides the customisability to run private permissioned blockchains as well as permissionless where the enterprise is in control over who validates the blockchain, with the ability to use complex rulesets to meet regulatory compliance, thus scores ✅✅✅. Cosmos is also able to run permissioned and permissionless zones / hubs so enterprises have full control over who validates a blockchain and scores ✅✅. Polkadot requires locking up large amounts of a highly volatile asset with the possibility of being outbid by competitors and being unable to run the application if the guaranteed performance is required and having to migrate away. The relay chain validates the state transition and can roll back the parachain should an invalid block be detected on another parachain, thus scores ✅.
CosmosCosmos will connect Hubs and Zones together through its IBC protocol (due to release in Q1 2020). Connecting to blockchains outside of the Cosmos ecosystem would either require the connected blockchain to fork their code to implement IBC or more likely a custom “Peg Zone” will be created specific to work with a particular blockchain it’s trying to bridge to such as Ethereum etc. Each Zone and Hub has different trust levels and connectivity between 2 zones can have different trust depending on which path it takes (this is discussed more in this article). Finality time is low at 6 seconds, but depending on the number of hops, this can increase significantly.
PolkadotPolkadot’s shared state means each parachain that connects shares the same trust assumptions, of the relay chain validators and that if one blockchain needs to be reverted, all of them will need to be reverted. Interoperability is enabled between parachains through Cross-Chain Message Passing (XCMP) protocol and is also possible to connect to other systems through bridges, which are specifically designed parachains or parathreads that each are custom made to interact with another ecosystem such as Ethereum and Bitcoin. Finality time between parachains is around 60 seconds, but longer will be needed (initial figures of 60 minutes in the whitepaper) for connecting to external blockchains. Thus limiting the appeal of connecting two external ecosystems together through Polkadot. Polkadot is also limited in the number of Parachain slots available, thus limiting the amount of blockchains that can be bridged. Parathreads could be used for lower performance bridges, but the speed of future blockchains is only going to increase.
AvalancheA subnet can validate multiple virtual machines / blockchains and all blockchains within a subnet share the same trust assumptions / validator set, enabling cross chain interoperability. Interoperability is also possible between any other subnet, with the hope Avalanche will consist of thousands of subnets. Each subnet may have a different trust level, but as the primary network consists of all validators then this can be used as a source of trust if required. As Avalanche supports many virtual machines, bridges to other ecosystems are created by running the connected virtual machine. There will be an Ethereum bridge using the EVM shortly after mainnet. Finality time is much faster at sub 3 seconds (with most happening under 1 second) with no chance of rolling back so more appealing when connecting to external blockchains.
ResultsAll 3 systems are able to perform interoperability within their ecosystem and transfer assets as well as data, as well as use bridges to connect to external blockchains. Cosmos has different trust levels between its zones and hubs and can create issues depending on which path it takes and additional latency added. Polkadot provides the same trust assumptions for all connected parachains but has long finality and limited number of parachain slots available. Avalanche provides the same trust assumptions for all blockchains within a subnet, and different trust levels between subnets. However due to the primary network consisting of all validators it can be used for trust. Avalanche also has a much faster finality time with no limitation on the number of blockchains / subnets / bridges that can be created. Overall all three blockchains excel with interoperability within their ecosystem and each score ✅✅.
CosmosThe ATOM token is the native token for the Cosmos Hub. It is commonly mistaken by people that think it’s the token used throughout the cosmos ecosystem, whereas it’s just used for one of many hubs in Cosmos, each with their own token. Currently ATOM has little utility as IBC isn’t released and has no connections to other zones / hubs. Once IBC is released zones may prefer to connect to a different hub instead and so ATOM is not used. ATOM isn’t a fixed capped supply token and supply will continuously increase with a yearly inflation of around 10% depending on the % staked. The current market cap for ATOM as of the time of this writing is $1 Billion with 203 million circulating supply. Rewards can be earnt through staking to offset the dilution caused by inflation. Delegators can also get slashed and lose a portion of their ATOM should the validator misbehave.
PolkadotPolkadot’s native token is DOT and it’s used to secure the Relay Chain. Each parachain needs to acquire sufficient DOT to win an auction on an available parachain lease period of up to 24 months at a time. Parathreads have a fixed fee for registration that would realistically be much lower than the cost of acquiring a parachain slot and compete with other parathreads in a per-block auction to have their transactions included in the next relay chain block. DOT isn’t a fixed capped supply token and supply will continuously increase with a yearly inflation of around 10% depending on the % staked. The current market cap for DOT as of the time of this writing is $4.4 Billion with 852 million circulating supply. Delegators can also get slashed and lose their DOT (potentially 100% of their DOT for serious attacks) should the validator misbehave.
AvalancheAVAX is the native token for the primary network in Avalanche. Every validator of any subnet also has to validate the primary network and stake a minimum of 2000 AVAX. There is no limit to the number of validators like other consensus methods then this can cater for tens of thousands even potentially millions of validators. As every validator validates the primary network, this can be a source of trust for interoperability between subnets as well as connecting to other ecosystems, thus increasing amount of transaction fees of AVAX. There is no slashing in Avalanche, so there is no risk to lose your AVAX when selecting a validator, instead rewards earnt for staking can be slashed should the validator misbehave. Because Avalanche doesn’t have direct slashing, it is technically possible for someone to both stake AND deliver tokens for something like a flash loan, under the invariant that all tokens that are staked are returned, thus being able to make profit with staked tokens outside of staking itself.
There will also be a separate subnet for Athereum which is a ‘spoon,’ or friendly fork, of Ethereum, which benefits from the Avalanche consensus protocol and applications in the Ethereum ecosystem. It’s native token ATH will be airdropped to ETH holders as well as potentially AVAX holders as well. This can be done for other blockchains as well.
Transaction fees on the primary network for all 3 of the blockchains as well as subscription fees for creating a subnet and blockchain are paid in AVAX and are burnt, creating deflationary pressure. AVAX is a fixed capped supply of 720 million tokens, creating scarcity rather than an unlimited supply which continuously increase of tokens at a compounded rate each year like others. Initially there will be 360 tokens minted at Mainnet with vesting periods between 1 and 10 years, with tokens gradually unlocking each quarter. The Circulating supply is 24.5 million AVAX with tokens gradually released each quater. The current market cap of AVAX is around $100 million.
ResultsAvalanche’s AVAX with its fixed capped supply, deflationary pressure, very strong utility, potential to receive air drops and low market cap, means it scores ✅✅✅. Polkadot’s DOT also has very strong utility with the need for auctions to acquire parachain slots, but has no deflationary mechanisms, no fixed capped supply and already valued at $3.8 billion, therefore scores ✅✅. Cosmos’s ATOM token is only for the Cosmos Hub, of which there will be many hubs in the ecosystem and has very little utility currently. (this may improve once IBC is released and if Cosmos hub actually becomes the hub that people want to connect to and not something like Binance instead. There is no fixed capped supply and currently valued at $1.1 Billion, so scores ✅.
All three are excellent projects and have similarities as well as many differences. Just to reiterate this article is not intended to be an extensive in-depth list, but rather an overview based on some of the criteria that I feel are most important. For a more in-depth view I recommend reading the articles for each of the projects linked above and coming to your own conclusions, you may have different criteria which is important to you, and score them differently. There won’t be one platform to rule them all however, with some uses cases better suited to one platform over another, and it’s not a zero-sum game. Blockchain is going to completely revolutionize industries and the Internet itself. The more projects researching and delivering breakthrough technology the better, each learning from each other and pushing each other to reach that goal earlier. The current market is a tiny speck of what’s in store in terms of value and adoption and it’s going to be exciting to watch it unfold.
For more information see the articles below (each with additional sources at the bottom of their articles)
Avalanche, a Revolutionary Consensus Engine and Platform. A Game Changer for Blockchain
Avalanche Consensus, The Biggest Breakthrough since Nakamoto
Cosmos — An Early In-Depth Analysis — Part One
Cosmos — An Early In-Depth Analysis — Part Two
Cosmos Hub ATOM Token and the commonly misunderstood staking tokens — Part Three
Polkadot — An Early In-Depth Analysis — Part One — Overview and Benefits
Polkadot — An Early In-Depth Analysis — Part Two — How Consensus Works
Polkadot — An Early In-Depth Analysis — Part Three — Limitations and Issues
Can they overcome the product limitations of blockchain and deliver the world-class experience that consumers expect?submitted by mickhagen to genesisblockhq [link] [comments]
This is the second part of Crypto Banking Wars — a new series that examines what crypto-native company is most likely to become the bank of the future. Who is best positioned to reach mainstream adoption in consumer finance?
While crypto allows the world to get rid of banks, a bank will still very much be necessary for this very powerful technology to reach the masses. As we laid out in our previous series, Crypto-Powered, we believe companies that build with blockchain at their core will have the best shot at winning the broader consumer finance market. We hope it will be us at Genesis Block, but we aren’t the only game in town.
So this series explores the entire crypto landscape and tries to answer the question, which crypto company is most likely to become the bank of the future?
In our last episode, we offered an in-depth analysis of big crypto exchanges like Coinbase & Binance. Today we’re analyzing non-custodial crypto wallets. These are products where only the user can touch or move funds. Not even the company or developer who built the application can access, control, or stop funds from being moved. These apps allow users to truly become their own bank.
We’ve talked a little about this before. This group of companies is nowhere near the same level of threat as the biggest crypto exchanges. However, this group really understands DeFi and the magic it can bring. This class of products is heavily engineer-driven and at the bleeding-edge of DeFi innovation. These products are certainly worth discussing. Okay, let’s dive in.
Users & AudienceThese non-custodial crypto wallets are especially popular among the most hardcore blockchain nerds and crypto cypherpunks.
“Not your keys, not your coins.”This meme is endlessly repeated among longtime crypto hodlers. If you’re not in complete control of your crypto (i.e. using non-custodial wallets), then it’s not really your crypto. There has always been a close connection between libertarianism & cryptocurrency. This type of user wants to be in absolute control of their money and become their own bank.
In addition to the experienced crypto geeks, for some people, these products will mean the difference between life and death. Imagine a refugee family that wants to safely protect their years of hard work — their life savings — as they travel across borders. Carrying cash could put their safety or money at risk. A few years ago I spent time in Greece at refugee camps — I know first-hand this is a real use-case.
Or imagine a family living under an authoritarian regime — afraid that their corrupt or oppressive government will seize their assets (or devalue their savings via hyperinflation). Citizens in these countries cannot risk putting their money in centralized banks or under their mattresses. They must become their own bank.
These are the common use-cases and users for non-custodial wallets.
Products in MarketLet’s do a quick round-up of some of the more popular products already in the market.
Web/Desktop The most popular web wallet is MetaMask. Though it doesn’t have any specific integration with DeFi protocols yet, it has more than a million users (which is a lot in crypto land!). Web wallets that are more deeply integrated with DeFi include InstaDapp, Zerion, DeFi Saver, Zapper, and MyCrypto (disclosure: I’m an investor and a big fan of Taylor). For the mass market, mobile will be a much more important form-factor. I don’t view these web products as much of a threat to Genesis Block.
Mobile The more serious threats to Genesis Block are the mobile products that (A) are leveraging some of the powerful DeFi protocols and (B) abstracting away a lot of the blockchain/DeFi UX complexity. While none get close to us on (B), the products attempting this are Argent and Dharma. To the extent they can, both are trying to make interacting with blockchain technology as simple as possible.
A few of the bigger exchanges have also entered this mobile non-custodial market. Coinbase has Wallet (via Cipher Browser acquisition). Binance has Trust Wallet (also via acquisition). And speaking of acquisitions, MyCrypto acquired Ambo, which is a solid product and has brought MyCrypto into the mobile space. Others worth mentioning include Rainbow — well-designed and built by a small indy-team with strong DeFi experience (former Balance team). And ZenGo which has a cool feature around keyless security (their CEO is a friend).
There are dozens of other mobile crypto wallets that do very little beyond showing your balances. They are not serious threats.
Hardware Wallets Holding crypto on your own hardware wallet is widely considered to be “best practice” from a security standpoint. The most popular hardware wallets are Ledger, Trezor, and KeepKey (by our friends at ShapeShift). Ledger Nano X is the only product that has Bluetooth — thus, the only one that can connect to a mobile app. While exciting and innovative, these hardware wallets are not yet integrated with any DeFi protocols.
StrengthsLet’s take a look at some of the strengths with non-custodial products.
WeaknessesNow let’s examine some of the weaknesses.
Wrap UpOne of the great powers of crypto is that we no longer depend on banks. Anyone can store their wealth and have absolute control of their money. That’s made possible with these non-custodial wallets. It’s a wonderful thing.
I believe that the most knowledgeable and experienced crypto people (including myself) will always be active users of these applications. And as mentioned in this post, there will certainly be circumstances where these apps will be essential & even life-saving.
However, I do not believe this category of product is a major threat to Genesis Block to becoming the bank of the future.They won’t win in the broader consumer finance market — mostly because I don’t believe that’s their target audience. These applications simply cannot produce the type of product experience that the masses require, want, or expect. The Weaknesses I’ve outlined above are just too overwhelming. The friction for mass-market consumers is just too much.
The winning bank will be focused on solving real user problems and meeting user needs. Not slowed down by rigid idealism like censorship-resistance and absolute decentralization, as it is with most non-custodial wallets. The winning bank will be a world-class product that’s smooth, performant, and accessible. Not sluggish and slow, as it is with most non-custodial wallets. The winning bank will be one where blockchain & crypto is mostly invisible to end-users. Not front-and-center as it is with non-custodial wallets. The winning bank will be one managed and run by professionals who know exactly what they’re doing. Not DIY (Do It Yourself), as it is with non-custodial wallets.
So are these non-custodial wallets a threat to Genesis Block in winning the broader consumer finance market, and becoming the bank of the future?
No. They are designed for a very different audience.
Other Ways to Consume Today's Episode:
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A whirlwind tour of Defi, paying close attention to protocols that we’re leveraging at Genesis Block.submitted by mickhagen to genesisblockhq [link] [comments]
This is the third post of Crypto-Powered — a new series that examines what it means for Genesis Block to be a digital bank that’s powered by crypto, blockchain, and decentralized protocols.
Last week we explored how building on legacy finance is a fool’s errand. The future of money belongs to those who build with crypto and blockchain at their core. We also started down the crypto rabbit hole, introducing Bitcoin, Ethereum, and DeFi (decentralized finance). That post is required reading if you hope to glean any value from the rest of this series.
97% of all activity on Ethereum in the last quarter has been DeFi-related. The total value sitting inside DeFi protocols is roughly $2B — double what it was a month ago. The explosive growth cannot be ignored. All signs suggest that Ethereum & DeFi are a Match Made in Heaven, and both on their way to finding strong product/market fit.
So in this post, we’re doing a whirlwind tour of DeFi. We look at specific examples and use-cases already in the wild and seeing strong growth. And we pay close attention to protocols that Genesis Block is integrating with. Alright, let’s dive in.
StablecoinsStablecoins are exactly what they sound like: cryptocurrencies that are stable. They are not meant to be volatile (like Bitcoin). These assets attempt to peg their price to some external reference (eg. USD or Gold). A non-volatile crypto asset can be incredibly useful for things like merchant payments, cross-border transfers, or storing wealth — becoming your own bank but without the stress of constant price volatility.
There are major governments and central banks that are experimenting with or soon launching their own stablecoins like China with their digital yuan and the US Federal Reserve with their digital dollar. There are also major corporations working in this area like JP Morgan with their JPM Coin, and of course Facebook with their Libra Project.
Stablecoin activity has grown 800% in the last year, with $290B of transaction volume (funds moving on-chain).The most popular USD-pegged stablecoins include:
tablecoins are playing an increasingly important role in the world of DeFi. In a way, they serve as common pipes & bridges between the various protocols.https://preview.redd.it/v9ki2qro12b51.png?width=700&format=png&auto=webp&s=dbf591b122fc4b3d83b381389145b88e2505b51d
Lending & BorrowingThree of the top five DeFi protocols relate to lending & borrowing. These popular lending protocols look very similar to traditional money markets. Users who want to earn interest/yield can deposit (lend) their funds into a pool of liquidity. Because it behaves similarly to traditional money markets, their funds are not locked, they can withdraw at any time. It’s highly liquid.
Borrowers can tap into this pool of liquidity and take out loans. Interest rates depend on the utilization rate of the pool — how much of the deposits in the pool have already been borrowed. Supply & demand. Thus, interest rates are variable and borrowers can pay their loans back at any time.
So, who decides how much a borrower can take? What’s the process like? Are there credit checks? How is credit-worthiness determined?These protocols are decentralized, borderless, permissionless. The people participating in these markets are from all over the world. There is no simple way to verify identity or check credit history. So none of that happens.
Credit-worthiness is determined simply by how much crypto collateral the borrower puts into the protocol. For example, if a user wants to borrow $5k of USDC, then they’ll need to deposit $10k of BTC or ETH. The exact amount of collateral depends on the rules of the protocol — usually the more liquid the collateral asset, the more borrowing power the user can receive.
The most prominent lending protocols include Compound, Aave, Maker, and Atomic Loans. Recently, Compound has seen meteoric growth with the introduction of their COMP token — a token used to incentivize and reward participants of the protocol. There’s almost $1B in outstanding debt in the Compound protocol. Mainframe is also working on an exciting protocol in this area and the latest iteration of their white paper should be coming out soon.
There is very little economic risk to these protocols because all loans are overcollateralized.I repeat, all loans are overcollateralized. If the value of the collateral depreciates significantly due to price volatility, there are sophisticated liquidation systems to ensure the loan always gets paid back.
InvestmentsBuying, selling, and trading crypto assets is certainly one form of investing (though not for the faint of heart). But there are now DeFi protocols to facilitate making and managing traditional-style investments.
Through DeFi, you can invest in Gold. You can invest in stocks like Amazon and Apple. You can short Tesla. You can access the S&P 500. This is done through crypto-based synthetics — which gives users exposure to assets without needing to hold or own the underlying asset. This is all possible with protocols like UMA, Synthetix, or Market protocol.
Maybe your style of investing is more passive. With PoolTogether , you can participate in a no-loss lottery.
Maybe you’re an advanced trader and want to trade options or futures. You can do that with DeFi protocols like Convexity, Futureswap, and dYdX. Maybe you live on the wild side and trade on margin or leverage, you can do that with protocols like Fulcrum, Nuo, and DDEX. Or maybe you’re a degenerate gambler and want to bet against Trump in the upcoming election, you can do that on Augur.
And there are plenty of DeFi protocols to help with crypto investing. You could use Set Protocol if you need automated trading strategies. You could use Melonport if you’re an asset manager. You could use Balancer to automatically rebalance your portfolio.
With as little as $1, people all over the world can have access to the same investment opportunities and tools that used to be reserved for only the wealthy, or those lucky enough to be born in the right country.
You can start to imagine how services like Etrade, TD Ameritrade, Schwab, and even Robinhood could be massively disrupted by a crypto-native company that builds with these types of protocols at their foundation.https://preview.redd.it/agco8msx12b51.png?width=700&format=png&auto=webp&s=3bbb595f9ecc84758d276dbf82bc5ddd9e329ff8
InsuranceAs mentioned in our previous post, there are near-infinite applications one can build on Ethereum. As a result, sometimes the code doesn’t work as expected. Bugs get through, it breaks. We’re still early in our industry. The tools, frameworks, and best practices are all still being established. Things can go wrong.
Sometimes the application just gets in a weird or bad state where funds can’t be recovered — like with what happened with Parity where $280M got frozen (yes, I lost some money in that). Sometimes, there are hackers who discover a vulnerability in the code and maliciously steal funds — like how dForce lost $25M a few months ago, or how The DAO lost $50M a few years ago. And sometimes the system works as designed, but the economic model behind it is flawed, so a clever user takes advantage of the system— like what recently happened with Balancer where they lost $500k.
There are a lot of risks when interacting with smart contracts and decentralized applications — especially for ones that haven’t stood the test of time. This is why insurance is such an important development in DeFi.
Insurance will be an essential component in helping this technology reach the masses.Two protocols that are leading the way on DeFi insurance are Nexus Mutual and Opyn. Though they are both still just getting started, many people are already using them. And we’re excited to start working with them at Genesis Block.
Exchanges & LiquidityDecentralized Exchanges (DEX) were one of the first and most developed categories in DeFi. A DEX allows a user to easily exchange one crypto asset for another crypto asset — but without needing to sign up for an account, verify identity, etc. It’s all via decentralized protocols.
Within the first 5 months of 2020, the top 7 DEX already achieved the 2019 trading volume. That was $2.5B. DeFi is fueling a lot of this growth.
There are many different flavors of DEX. Some of the early ones included 0x, IDEX, and EtherDelta — all of which had a traditional order book model where buyers are matched with sellers.
Another flavor is the pooled liquidity approach where the price is determined algorithmically based on how much liquidity there is and how much the user wants to buy. This is known as an AMM (Automated Market Maker) — Uniswap and Bancor were early leaders here. Though lately, Balancer has seen incredible growth due mostly to their strong incentives for participation — similar to Compound.
There are some DEXs that are more specialized — for example, Curve and mStable focus mostly only stablecoins. Because of the proliferation of these decentralized exchanges, there are now aggregators that combine and connect the liquidity of many sources. Those include Kyber, Totle, 1Inch, and Dex.ag.
These decentralized exchanges are becoming more and more connected to DeFi because they provide an opportunity for yield and earning interest.Users can earn passive income by supplying liquidity to these markets. It usually comes in the form of sharing transaction fee revenue (Uniswap) or token rewards (Balancer).
PaymentsAs it relates to making payments, much of the world is still stuck on plastic cards. We’re grateful to partner with Visa and launch the Genesis Block debit card… but we still don’t believe that's the future of payments. We see that as an important bridge between the past (legacy finance) and the future (crypto).
Our first post in this series shared more on why legacy finance is broken. We talked about the countless unnecessary middle-men on every card swipe (merchant, acquiring bank, processor, card network, issuing bank). We talked about the slow settlement times.
The future of payments will be much better. Yes, it’ll be from a mobile phone and the user experience will be similar to ApplePay (NFC) or WePay (QR Code).
But more importantly, the underlying assets being moved/exchanged will all be crypto — digital, permissionless, and open source.Someone making a payment at the grocery store check-out line will be able to open up Genesis Block, use contactless tech or scan a QR code, and instantly pay for their goods. All using crypto. Likely a stablecoin. Settlement will be instant. All the middlemen getting their pound of flesh will be disintermediated. The merchant can make more and the user can spend less. Blockchain FTW!
Now let’s talk about a few projects working in this area. The xDai Burner Wallet experience was incredible at the ETHDenver event a few years ago, but that speed came at the expense of full decentralization (can it be censored or shut down?). Of course, Facebook’s Libra wants to become the new standard for global payments, but many are afraid to give Facebook that much control (newsflash: it isn’t very decentralized).
Bitcoin is decentralized… but it’s slow and volatile. There are strong projects like Lightning Network (Zap example) that are still trying to make it happen. Projects like Connext and OmiseGo are trying to help bring payments to Ethereum. The Flexa project is leveraging the gift card rails, which is a nice hack to leverage existing pipes. And if ETH 2.0 is as fast as they say it will be, then the future of payments could just be a stablecoin like DAI (a token on Ethereum).
In a way, being able to spend crypto on daily expenses is the holy grail of use-cases. It’s still early. It hasn’t yet been solved. But once we achieve this, then we can ultimately and finally say goodbye to the legacy banking & finance world. Employees can be paid in crypto. Employees can spend in crypto. It changes everything.
Legacy finance is hanging on by a thread, and it’s this use-case that they are still clinging to. Once solved, DeFi domination will be complete.https://preview.redd.it/svft1ce422b51.png?width=700&format=png&auto=webp&s=9a6afc9e9339a3fec29ee2ae743c07c3042ea4ce
Impact on Genesis BlockAt Genesis Block, we’re excited to leverage these protocols and take this incredible technology to the world. Many of these protocols are already deeply integrated with our product. In fact, many are essential. The masses won’t know (or care about) what Tether, USDC, or DAI is. They think in dollars, euros, pounds and pesos. So while the user sees their local currency in the app, the underlying technology is all leveraging stablecoins. It’s all on “crypto rails.”
When users deposit assets into their Genesis Block account, they expect to earn interest. They expect that money to grow. We leverage many of these low-risk lending/exchange DeFi protocols. We lend into decentralized money markets like Compound — where all loans are overcollateralized. Or we supply liquidity to AMM exchanges like Balancer. This allows us to earn interest and generate yield for our depositors. We’re the experts so our users don’t need to be.
We haven’t yet integrated with any of the insurance or investment protocols — but we certainly plan on it. Our infrastructure is built with blockchain technology at the heart and our system is extensible — we’re ready to add assets and protocols when we feel they are ready, safe, secure, and stable. Many of these protocols are still in the experimental phase. It’s still early.
At Genesis Block we’re excited to continue to be at the frontlines of this incredible, innovative, technological revolution called DeFi.---
None of these powerful DeFi protocols will be replacing Robinhood, SoFi, or Venmo anytime soon. They never will. They aren’t meant to! We’ve discussed this before, these are low-level protocols that need killer applications, like Genesis Block.
So now that we’ve gone a little deeper down the rabbit hole and we’ve done this whirlwind tour of DeFi, the natural next question is: why?
Why does any of it matter?Most of these financial services that DeFi offers already exist in the real world. So why does it need to be on a blockchain? Why does it need to be decentralized? What new value is unlocked? Next post, we answer these important questions.
To look at more projects in DeFi, check out DeFi Prime, DeFi Pulse, or Consensys.
Other Ways to Consume Today's Episode:
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