WaykiChain CEO, Gordon Gao: What DeFi should be? — WaykiChain’s approach to making finance decentralized
On May 19th, 2020, WaykiChain CEO, Gordon Gao was invited to give a speech on Crypto Asia Summit. Here is his speech content sharing:
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If we pick one buzzword from 2019 and 2020 in the blockchain industry, that must be decentralized finance, which is DeFi.
Starting from 2017, ETH locked in DeFi system has been raised from nearly 0 to 2.6 M. So far, hundreds of applications are running or under development on Etherem. So it is clear to see that the development of DeFi is blooming.
Starting from the beginning of 2019, WaykiChain has been thinking about how to design an efficient and secure public blockchain, which aims to provide financial services to cryptocurrency holders. We realized that the crypto community is consists of developer geeks and the rest of them, which is the largest group, are investors and speculators. Financial services are the rigid demands of those people and they need some transparent and trustworthy platforms to satisfy their demands. So WaykiChain decided to focus on DeFi, and then we launched our first DeFi product, Wayki-CDP. Wayki-CDP is a lending protocol which allows users to borrow WUSD with some collateralization. Now we have over 30M WICC pledged in the system and this takes 15% of the WICC’s total amount.
In the process of designing the system, we see some problems with Etherum and the applications on that. For example, it is nearly impossible to build a secure financial application on ETH as solidity can nearly do everything. This will cause difficulties to test every possible outcome. And the economy models of some large Defi projects are not efficient. I will share WaykiChain’s approach on how to make the improvement in our DeFi ecosystem.
Nearly all the Defi protocols start from some level of collateralization. So we believe DeFi platform should be strong under price collapse.
WaykiChain’s performance under The 3.12 Collapse
On March 12th,2020, the entire cryptocurrency market has been suffered from a severe downturn. Bitcoin’s price dropped over 50% within 24 hours. During this time, as one of the largest DeFi protocol on Etherum, MakerDAO’s liquidation system was not functioning very well, due to the traffic conjunction of ETH network and some flaws in their model design. The protocol was nearly to be closed and generated over 4M USD bad debt. These bad debts need to be removed through auction. This means that the entire MakerDao’s community and MKR holders should cover the lost.
However, at the same time, Wayki-CDP, which is a similar lending protocol with MakerDAo, is running as normal with $0 bad debts. Here is the data comparison.
How can we achieve this? I would like to introduce our token economy model. We adopted a similar 3-token model with Maker. Users who don’t want to sell their coins but need some cash can pledge their assets to the CDP and generate WUSD, the stable coin, and pay some interest to the system. The interest will be used to recycle WGRT and destroy it. With the concept who benefit from the system is responsible, when the entire system is in trouble, the potential bad debt will be covered by the inflation of Governance coin WGRT.
Moreover, we designed 4 mechanisms to make sure the system will work in different situations.
Over-collateralization: At least 200% collateral rate to ensure the overall value of WICC is over the value of WUSD.
Clearing mechanism: Liquidators can purchase discounted assets.
Part of the penalty fee will be used to charge Risk Reserve Fund.
Risk Reserve Funding Pool: During Black Swan Events, this fund is used to close the insolvent CDPs.
Emergency Shutdown: When the overall collateralization rate falls below 80% during Black Swan Events, the system will be suspended. After the market stabilizes or rebounds, the community can initiate a restart proposal.
How does WaykiChain enhance security to avoid hacking?
If there is something can stop DeFi from being a widespread application. It must be safety issues. Frequent exploits drain people’s faith with DeFi and some people stop being optimistic about the future of this industry.
Here are some of the attacks: DeFi Project bZx Exploited for the second time in a week, loses $630K in Ether; An re-entrancy attack drains dForce $25M in Crypto; dForce loses 99% funds, and Enthereum-based Synthetic Asset platform loses 37M tokens in an oracle Attack.
Most of the attacks are the problem of the project itself. We believe Etherum also has some features which are not suitable to provide financial services.
If we think this carefully, most of the attacks can be avoided if the system is developed in a structured way. I will share what WaykiChain did to improve the security level. We believe in these aspects we did much better than ETH.
Oracle attack means hackers can change the price feeding program and manipulate the market price to make profits. In Synthetix’s hack event, one of the APIs on the platform was reported a 1000x higher price of the actual rate of Korean Won(KRW). However, WaykiChain makes the oracle fully decentralized to avoid this from happening. 11 Block producers act as the reporter. And the moving median algorithm is adopted to avoid misreporting on a single node.
Some attacks made use of the compatibility issues on ETH. Some operations are quite reasonable in one protocol but will cause problems if we interoperate between smart contracts. As for the bZx case, Hackers made use of the flash loan on the dYdX platform to borrow low-liquidity assets and sell them in another protocol (Kyber and Uniswap). Then make profits by shorting this low-liquidity asset. Important functions like DEX, price feeding, and stable coin developed on the bottom layer of blockchain as basic infrastructure. In this way, frequently used protocols are developed by one team and are fully tested and verified.
Some hacks are caused by the unclearly defined asset standard. In dForce case, dForce and Uniswap have compatibility issues with ERC-777 tokens as it is not a normal Ethereum standard, which makes re-entrancy attack available. On WaykiChain, Asset standards are defined on the bottom layer of blockchain. 5 asset types supported. Original Assets, pledged assets, cross-chain assets, user-generated assets, and smart assets. Every standard is unique across the system and you own your own money, not the smart contract owns.
In the real world, a healthy financial system is built in a structured way. We have a central bank, commercial bank, and investment banks. Each of them is playing different roles and have different authorities. We believe DeFi eco-system should be built in a similar way, a structured way, instead of just putting Lego blocks together.
In addition to the well-designed economy model and security level, we believe DeFi should have some other features like: Decentralization. It is interesting that decentralized finance needs to be decentralized. Because there are a lot of DeFi products on the market, but not all of them are fully decentralized. If we take care of all of the following aspects
If we take care of all of the above aspects, we can realize that WaykiChain decentralized application on WaykiChain is the only application that is non-centralized managed, with a decentralized information source, address-initiated margin call notification, address provided marginal liquidity, community-determined interest rate, the decentralized protocol developed and updated applications.
WaykiChain Technological Features
We also believe the users and developers experience are equally important as the above-mentioned factors. Here are some technical features to improve the experience.
Although DeFi on ETH is rising, I still believe the industry should keep an eye on the DeFi ecosystem on other blockchains. Maybe some dark horses are among them, and WaykiChain is definitely one of them.
If you want to watch Gordon Gao speech video on Crypto Asia Summit, please visit: https://www.chaintalk.tv/watch/gordon-gao/