Since the combination of Ethereum and smart contract technology, the application of blockchain world has shown a blowout development, while the phenomenal application in recent years is the technology of DeFi (decentralized financial application). It is known as an important part of blockchain application landing, and it is just from this that traditional financial institutions try to inject new vitality into the financial system.
Some time ago, the Bank of the Netherlands International Group wrote the key conclusion entitled “Lessons Learned from Decentralized Finance”, which put forward the key conclusion that “if traditional finance and decentralized financial services can be combined, a better way of providing financial services can be achieved”. Therefore, we can predict that blockchain technology is not a purely speculative tool for the world, but an application technology capable of combining with traditional industries.
DeFi application layer capability
DeFi is commonly defined as transforming traditional financial products into products without intermediaries through smart contracts on blockchain. And in principle, any existing traditional financial services can be transferred to similar decentralized financial services. DeFi is characterized by decentralization, which is managed by multiple parties.
At present, most of DeFi financial services consist of the following:
Banking services for currency conversion (e.g. issuing stable currencies);
Provide peer-to-peer (or pooled) lending platforms;
Enable advanced financial instruments such as decentralized exchanges (DEX), certified platforms, derivatives and forecasting markets.
Since it is a non-centered new financial system, DeFi naturally has the advantage of being comparable to or far superior to the traditional financial architecture. Some of the outstanding advantages are listed below.
In the context of DeFi, decentralization can be described as a convenient way to provide financial services without a credible intermediary, or it can be regarded as a centerless digital information validity verification, settlement and protocol.
Through open source and open sharing of core technologies, anyone from bitcoin, Ethereum or other platforms can use these technologies. Therefore, we can build new applications on the basis of these technologies, so as to realize the innovation of these platforms and applications. This is in sharp contrast to traditional financial institutions. With a few exceptions, we do not know that any traditional financial institution has opened its core technology.
Chen and Bellavitis believe that if financial services are not linked to geographical location or legal tender, and anyone around the world has access to these financial services, then there is no borders. On the contrary, traditional finance cannot be truly borderless, because traditional finance is always linked to geographical location or legal tender.
The transparency of smart contracts allows anyone to review the code of smart contracts. Therefore, any individual can choose to use different financial services according to their review of the smart contract code.
In addition to the above main advantages, DeFi also has many characteristics such as business process automation, flexibility, finality and combination, so financial institutions around the world are trying to link to blocks to improve the existing financial system. We can prove the application method with an example.
Typical example: The King asset token platform
The king (TK) is a token platform with no threshold, no center and fair start for high value-added assets. Any investor can use TK platform to convert assets into its ecological token, and join pledge and liquidity mining to produce additional value through the algorithm of smart contract.
In essence, TK is similar to the banking institutions in blockchain, and pledge or liquidity mining is similar to deposits or derivatives. But with the centerless characteristics of blockchain, TK can make it possible to circulate assets at a high speed worldwide. And TK uses mature smart contract technology to ensure the liquidity risk and utilization of assets, and transactions between other blockchains require less handling fees.
From the perspective of investment, the number of TK ecological tokens is constant to 10000 contracts, and can not be issued by any means. Therefore, TK tokens are inherently inflation resistant, which is almost impossible to be achieved in traditional finance. In addition, the quantity of TK means that the market supply and demand relationship has a great impact on prices, but this trend is positive. Once the market has capital inflow, the liquidity of TK will be generated; The significance of defi is that liquidity gives ecological value, and the stronger the liquidity value is, which defines TK as a kind of asset with spiral rising space.
From the user level, the TK platform does not have any concepts such as “pre-sale, pre-digging” of traditional blockchain projects. The starting point of all users is equal. The circulation of the market and the investment behavior of users are formed by community consensus, so there is no “fucking” behavior. The King Labs team is mainly responsible for the ecological construction and underlying technology maintenance of TK, and adds other derivatives in the future to build aggregation ecological platform.
Generally speaking, blockchain may be a new technology with unstable factors, but we can never deny the value and change it brings. We need to look at every new thing dialectically. TK provides a high-quality model for other projects. We should learn more experience from it and bring transformative power to the future financial system.