The wave of decentralized finance applications that launched in 2020 owed a great debt to the smart contract platform Ethereum, where traders busily pushed DeFi volumes into the billions. Ethereum-based decentralized applications (dApps) were the biggest success story of the year, at least if you discount Bitcoin’s stratospheric push towards $30k. Open finance protocols such as those related to lending, staking, and saving reiterated the raison d’être for cryptocurrencies, providing users with a trustless means of transacting value without depending on a trusted third party. In the space of a year, DeFi redefined the expression “free market” in its own image.
Unsurprisingly, major financial institutions have started to watch the crypto landscape closely, threatened by the speed at which Ethereum captured value while selling the dream of financial inclusion. And they have other networks to worry about too: while Ethereum undoubtedly dominated the DeFi landscape in 2020, spiraling network fees caused by high congestion, not to mention sluggish transaction confirmation times, highlighted common concerns about the platform’s long-term viability. Banks reconnoitering the DeFi landscape, therefore, should be aware of these fast-rising Ethereum competitors in the year ahead.
A public decentralized ledger that demonstrated processing an impressive 1.4 million transactions per second, Radix is a leading contender for Ethereum’s DeFi crown. Reinforced by a next-generation consensus mechanism called Cerberus and powered by the developer-friendly Radix Engine, the layer-1 protocol is the brainchild of autodidact Dan Hughes, a British blockchain evangelist and genius coder who first experimented with Bitcoin in 2011. Indeed, Hughes was inspired by the original Bitcoin code when he started developing Radix, which recently raised $12.7 million from its first-ever token sale and exceeded its funding goal.
In terms of performance, the platform is expected to surpass all DeFi rivals, including Ethereum, when it launches its mainnet, a consequence of its lightning speed, infinite scalability, and robust security – elements Hughes believes will drastically reduce DeFi hacks, exploits, and failures. Another USP of Radix, according to CEO Piers Ridyard, is that it doesn’t proclaim to be a general-purpose platform: it’s built specifically to improve the pain points of DeFi.
To that end, Radix has already integrated the leading oracle network Chainlink into its public network, giving developers access to a treasure trove of secure, accurate off-ledger data. Other Radix integrations include REN and Quantstamp, to name a few. The implications of a blockchain with this level of performance include adoption from stock exchanges, credit card processors, and other traditional financial services providers.
Another British blockchain OG is behind Polkadot, an interoperable blockchain ecosystem that uses unique “sharding” technology. Like Dan Hughes, Gavin Wood was first introduced to Bitcoin in 2011 and later co-founded Ethereum with Vitalik Buterin, coding the network’s first functional implementation. Having disembarked from the Ethereum bandwagon, Polkadot now consumes all of his attention. A third-generation blockchain project with an $8.45 billion market cap, the platform seeks to facilitate endless economic scalability by enabling a common set of validators to secure multiple blockchains.
Within the Polkadot ecosystem, parachains bolt on to the main network, relying on its security while retaining their independence. Application developers can choose to deploy dApps as smart contracts on existing parachains or as their very own parachains. The Polkadot DeFi stack is expanding at a rapid rate, with projects such as cross-chain DEX networks (Zenlink), AMMs (Polkaswap), and staking platforms (Bitfrost) already in the wild. There is also Moonbeam, an Ethereum-compatible toolkit for smart contract deployment. Despite having only launched in mid-2020, Polkadot is currently the largest staking network by total value locked.
The third Ethereum alternative banks would do well to keep their eyes on is COSMOS, a decentralized network of parallel blockchains powered by BFT consensus algorithms. Interoperability and scalability are the watchwords at COSMOS, which recently organized a hackathon (HackAtom V) geared towards DeFi solutions such as cross-chain staking. COSMOS already boasts its own version of MakerDAO in the form of Kava, a DeFi protocol that enables users to deposit digital assets and borrow Kava’s dollar-pegged stablecoin, USDX. Cross-chain decentralized liquidity network THORChain is also based on Tendermint and Cosmos-SDK.
With DeFi requiring new sources of liquidity and collateral, COSMOS is well-positioned to capitalize in 2021. Kava’s CEO Brian Kerr has even alluded to the possibility of existing Ethereum DeFi projects like Compound and Augur being ported onto Cosmos via bridges or integration with Kava itself.
Banks are still the behemoths of finance, but if 2020 taught us anything, it was that existing systems can be upended in a matter of months. Expect the aforementioned Ethereum alternatives to be making big moves in DeFi in the year ahead.
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