Essential Questions & Answers related to Web3 and DeFi Community
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1- What is the difference between Traditional Finance (TradFi) vs Decentralised Finance (DeFi)?
DeFi allows you to easily experiment and create your economic framework and rules for how the economy works. It’s great playground to experiment quickly with alternative systems which until today has been very rigid and controlled by a few players.
2- With scams & hacks happening in crypto, the authorities & government are stepping in. Is that good or bad?
It’s a good thing. Although some people are anti-establishment — even myself — I think that no society (digital or not) can survive without governance. Today, there are traditional governments coming into the playing field to enforce regulations. But in the future, there could be different regulations enforced by Decentralized Authority Organizations or DAOs and blockchains in different ways. The good thing is that DeFi allows us to experiment, and any player is good, as long as we’re iterating it.
3- What are some solutions to prevent scams/hacks from happening?
Security is paramount. Hacks occur for different reasons. Personal key management is just one of one the issues among many. Hacks and scam in crypto does affect the reputation of DeFi or Web3 as a whole, hindering adoption especially by the mainstream masses.
The LUNA debacle didn’t really affect those who didn’t invest in LUNA and UST directly. But it definitely affected the rest of the crypto ecosystem indirectly. It was very negative and deterred a lot of enterprise interest, affecting progress by months if not years.
But it’s been this way for any large hack in the past, such as TheDAO hack, Mt. Gox hack, and projects that spun out of 2018 during the ICO phase as well.
It’s part and parcel from new technology, of embracing something new. And Web3Auth does help to fix a the problem, but in one particular small aspect, which is personal key management to manage security. Others include, audit firms, smart contract standards (e.g. OpenZeppelin). There are even great teams who pitch great UI/UX principles when it comes to interacting with dApps. There are newer smart contract languages that tries to handle this upfront, such as on Solana, Flow, that are more functional and safer than Solidity because it is more replicable as well.
There are some decentralised projects that come from DAOs, such as PrimeDAO, that are building tools to turn DeFI into a cooperative ecosystem — such as reviews & rating.
Also, Nexus Mutual, a decentralised alternative to insurance, where they use blockchain technology and Ethereum to allow people from all over the world to share smart contract failure and exchange hacks risk together, without the need for an insurance company.
The more of these kind of services become a standard stamp of trust for new projects, the more the masses will be assured and trust to invest in.
In terms of security, Solar operates on a dPos (Delegate Proof of Stake) model, which means there are 53 delegates running servers around the world, and each node forges a node for each new block. If a delegate doesn’t forge a block, because s/he goes offline, someone else among the 53 will do it.
This addresses the 3 pillars of blockchain which is decentralisation, security, and transaction throughput.
Other practical tips when it comes to avoiding scams and hacks — especially around NFTs — there are some things you can do. Verify your wallet with the project first before minting the project. So that once the NFT gets minted, it knows where to send that NFT to.
Also, it’s a good practice to not have a Discord until NFT is minted. For example, the recent BAYC hack could have been prevented with this approach. Also, you can have staggered NFT deployment where you deploy an NFT ticket and then redeem the ticket later on, to help mitigate gas fees.
Another one mentioned by Zen from Web3Auth, is the ability to write smart contracts that enforce rules and criteria for transacting.
4- How has DeFi evolved? How do you think it will DeFi evolve?
I think it’s trial and error, progressing tech and getting it to be more efficient, and then find use cases for that task. For example, ZKPs is one of the functions for DeFi which I think will potentially open up some new for DeFi. It could open a lot of doors, but it is still restrictive and relatively hard to use. And they’ve been used for scale more than they’ve been used for privacy reasons. I think other tools of technology like faster chains, lowering the barrier of entry allowing for more micro-financing, might open the barrier to uses outside DeFi.
Most of the tools that have been built are pretty similar, following the regular financial system. Most of the projects don’t have any utility besides financial speculation.
Yes, maybe we can fix the UX. But how is it going to affect why people are trying to come into the space, and what the utility that they are going to get out of it. Is it to get loans? If you don’t have money, it’s difficult to get loans.
What GoodDollar is trying to do, is to create something more sustainable — not just about speculation — but by giving free money to people so that they can leverage, and use that money to do actual useful things, to buy things for themselves.
There’s the rise of Regenerative Finance — the growth of projects that are trying to make real change to the ecosystem, not just duplicate it — by building a different economic framework by integrating with actual projects and activists on the ground.
5- Do you think that poor UX a key reason affecting the adoption of DeFi? How can it be improved?
Yes, we’ve been used to demos, simulations and tutorials when we started a game or a software on the Internet. It helps to onboard people who are new to something. Somehow, crypto made something that could be simple, complex. This makes it hard to retain consumers. When we first download a wallet like Metamask, it’d be good to see tutorials and video demos so that it sticks in the viewer’s head head. a video, a popup, emphasising.
6- How can DeFi be more integrated with other areas on the blockchain (such as DAOs & NFTs)?
I think first, it starts by understanding what consumers want, because DAOs are a democracy made of people with the right to vote. They have every right to vote and govern. It’s important to understand the utility of the project because DeFi can only do so much. If the utility is marvellous, DeFi ups the ante.
In NFTs, your project needs to have a cult, a connection with its users. You form a cult, so that DeFi can further push it. DeFi is not the goal. It could just be a catalyst for these DAOs and NFT projects.
7- What should be developed on-chain or off-chain?
Of course, there are different approaches based on the business. But if we’re talking about abstracting on-chain, we should put the main business logic that is related to the value inside the tokenomics of the project.
Off-chain, we could put media data if it’s economic, or user accounts, profiles, matching with the mail, etc.
Basically, the core business logic should be implemented in the smart contract, which helps the business to avoid the risk that of poor code that could risk the entire project & business.
Yes, anything that is related to transactions that blockchain is useful for. Blockchain creates transparency, because the code is usually open source. So it’s important to have it on the blockchain.
But today, with the introduction of Zero Knowledge Proofs (ZKPs) solutions, it interestingly and seems that in the future, we will have less and less blockchains because they have limited speed and scale.
Certainly keep your romantic life off-chain! It’s difficult what to decide what is on-chain or off-chain, but it requires defining what is private versus public data. There’s no one-size fits all approach.
Probably, medical data should be treated with a high degree of privacy. But I do think that putting some medical data on the private blockchain should be a pretty big business in the future — hopefully sooner than than later!
The benefit of developing on-chain is that you build trust, credibility and validity because you are open with source code and transparent with data.
When it comes to private data, oracle nodes are going to be very important, because it helps to facilitate and execute smart contracts. Although they’re used for public blockchains, they’re also being used for private blockchains. And they give a company or an individual the ability to write smart contracts to input conditions on what this data should be on-chain or off-chain.
In fact, one of the big oracle company is Chainlink, which recently announced 12 integrations with different chains like Ethereum, Solana and Polygon. So oracle nodes should be key to decide what goes on-chain or off-chain.
Decentralised identification such as ZKPs will also solve this question. They’re a new method to to shield certain information. For example, in the US, you have to be 21 years old to be able to purchase alcohol. When you go into the store, the teller will see your information from you licence. The thing is, the teller doesn’t have to know other info like you age, eye colour, first name — just your age. ZKPs essentially masks those other data, and only confirm necessary information like age. So yup, there are advancements being developed that are going to help solve the question of what should be developed on-chain or not.
8- What factors should developers consider, when deciding which blockchain to build upon?
Main thing we consider are the business requirements of our clients.
Sometimes, they want to get access to Ethereum, or they want to have lower transaction fees (so they’ll choose Polygon or Solana), and they may want to use a new network or ecosystem to be one of the first apps and projects of that network which gives them more support from that blockchain foundation. It’s really up to their business needs.
But our main approach is building a multi-chain ecosystem, to cover different needs across different chains, such as blockchain gaming.
Blockchain gaming has 2 big stages of development. First of all it’s fundraising from the community, and second it’s putting game and business logic into the NFT contract or even DAO contract.
If a project has a lot of requests form the users during their user experience, we usually recommend a low fee blockchain.
And if there are fundraising needs, we advise Ethereum, because there is a big community and a lot of support for fundraising.
Based on my understanding, it’s important for blockchains to have different SDKs to make it easier for developers to build. Also, Solar makes it programme-language agnostic, and offer different programming languages like JS, Typescript, Solidity. Solar also has SDKs which is similar to restful API.
Nonetheless, most blockchains are the same, their differences don’t really matter for most projects. Most of them are based on EVM, Ethereum, Solidity — which requires the most development. I think the most important thing when you choose your blockchain, is the ecosystem around it, and the support that you can get from the blockchain.
For example, the type of consensus, finality time or block time; they don’t really matter. What matters, are what other applications are on the blockchain and that you will integrate and work well with in the future. And of course, the support you can get from the DAO or foundation of that blockchain to help you reach your goal with your project.