MakerDAO is on a path to transform the global financial system. In December 2017, they created a digital currency called SAI, the only censorship resistant stablecoin on the market. The creation of SAI not only inspired the current wave of decentralized finance applications known as DeFi, its successor DAI, also plays a critical role in DeFi applications. These achievements are significant because DeFi is the first category of applications to achieve product market fit with blockchain technology.
Maker's impact does not end there. A lesser known fact about Maker is that they facilitate the success of cutting-edge DeFi projects by providing them with funding and support through the Maker Community Grants Program. We highlight some of the rockstar grantees below. In addition, if these projects are to become the future of our monetary system, security will also be paramount in order to safeguard the value managed by these apps. As a result, Maker and Quantstamp are enabling these grantees and the next generation of DeFi applications.
In this post, we cover some of our favorite projects that are pushing the boundaries of the DeFI ecosystem. We explain how:
- Maker set the foundation for the DeFi movement,
- Ramp Network disintermediates centralized fiat-to-crypto exchanges,
- PoolTogether’s no-loss-lottery incentivizes economically healthy behaviors,
- Kava aims to use BTC and other digital assets as collateral for a new stablecoin, and
- Quantstamp is securing the future of money.
Setting the foundation with Maker
Maker plays a foundational role in the development of DeFi by creating the first censorship resistant stablecoin pegged to the US dollar, now referred to as SAI. Due to the extreme volatility of digital assets, a solution such as SAI helped overcome adoption barriers by providing a stable unit of exchange.
In 2017, many in the cryptocurrency sphere were extremely interested in the potential of SAI; however, the economic mechanism that maintained SAI’s peg, in which collateralized Ether played a critical role, had yet to be tested. That test came in 2018 when the price of Ether collapsed by over 90%. SAI passed this test with flying colors by maintaining a strong peg throughout the collapse.
This past November 18th, Maker launched multi-collateral DAI, which is still pegged to the US dollar and can now be collateralized by digital assets other than Ether. On January 7th, 2020, over 42 million DAI was locked in DeFi applications. Also on the same date, 384 million USD worth of cryptocurrency was held as collateral in the Maker protocol including 2.2% of the total supply of Ether.
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Providing liquidity and reducing intermediaries with Ramp
In order to use DeFi applications, you first need to own cryptocurrency. The current steps required for someone to use a DeFi application include: setting up an account on a centralized exchange, connecting your bank account to that exchange, purchasing digital assets on that exchange, and then transferring these assets to a wallet or application.
Ramp Network is innovative because it removes the need for centralized exchanges to act as a bridge between the world of fiat currency and digital assets. Ramp Network created a trust minimized and decentralized architecture that allows users to purchase digital assets directly from each other using fiat currency without a centralized exchange.
Ramp Network enabled peer-to-peer sales by connecting smart contracts to open banking oracles to settle trades. When a seller wants to trade a digital asset for fiat money, the digital asset gets locked in a smart contract escrow account. The smart contract releases the digital asset once a buyer completes a direct wire transfer which is detected by open banking oracles.
The implications of the Ramp Network should not be underestimated. Ramp Network also allows this functionality to be easily integrated into any DeFi application or wallet. This means that users can now purchase digital assets with fiat currency directly from these applications. By removing the need for a centralized exchange to purchase digital assets, the Ramp Network not only reduced the friction associated with onboarding users to DeFi applications, it also facilitates liquidity entering the DeFi ecosystem through the applications themselves.
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Pursuing economic health with PoolTogether
PoolTogether enables healthy alternatives to traditional lotteries by incentivizing savings through their no-loss lottery. What is a no-loss lottery? It is a lottery that gives you all of the upside of winning a lottery’s pool of capital without any downside from purchasing a ticket. Put another way, if you buy a ticket to this lottery system and lose, you still keep the money you spent on the ticket.
Here’s how it works: when you buy a ticket, your funds get locked in a pool along with the funds of other participants. The funds in the pool do not remain idle: it collects interest by being lent out on Compound Finance. After seven days, a winner is selected, but that winner only receives the interest that was generated by the pool. The rest of the funds in the pool are automatically entered into the next lottery unless withdrawn by the participant.
In the most recent round, there were over 550 players with $300,000 of locked up capital.
PoolTogether is pushing DeFi forward by creating financial products that benefit the everyday person. PoolTogether’s mission is to help people achieve economic health using this unique pooling and interest generating structure. PoolTogether’s no-loss-lottery is only their first product. The PoolTogether team is considering creating a future product that allows high net worth individuals to hold their money in pools where the interest is donated to charity.
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Using BTC and more as collateral with Kava
Kava is developing the first DeFi platform offering collateralized loans using BTC, ATOM, XRP and BNB as collateral. This platform is similar to the Maker vault system: however, one of the key differences is that each of the digital assets used as collateral in Kava belongs to a unique blockchain. Maker currently only uses digital assets that are Ethereum native as collateral, ETH and BAT.
Users can leverage Kava to provide themselves with self-issued loans without the need of a credit score or counter party. When users collateralize digital assets on Kava, they receive the loan in USDX, a collateral-backed stablecoin pegged to the US dollar which can be used to leverage their exposure to cryptocurrencies.
Kava has the potential to bring BTC and other digital assets in play as collateral for the DeFi ecosystem. BTC’s liquid market cap is currently over $140 billion. Kava is designed to be a bridge that makes this value easily available in the DeFi ecosystem.
Kava launched their mainnet on November 14th, 2019. 60 validators were active at launch and 25 million USD worth of cryptocurrency was bonded on mainnet. The Kava team has recently launched transactions on their mainnet on December 3rd, 2019 and are now focused on developing their collateralized debt position system and the USDX stablecoin.
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Securing DeFi with Quantstamp
Quantstamp is a blockchain security company whose mission is to facilitate the mainstream adoption of blockchain applications by providing state-of-the-art security services. Currently, over 700 million USD worth of cryptocurrency is locked in DeFi smart contracts. Smart contracts are not bulletproof. In 2017, over a quarter billion USD worth of cryptocurrency was lost or stolen due to vulnerabilities in smart contracts.
Decentralized finance has the potential to enhance economic activity worldwide, but if projects do not incorporate expert security services into their development workflow, users will be hesitant to use those applications. Quantstamp serves the DeFi ecosystem by protecting the value held within DeFi applications and has experience securing nearly 100 projects that encompass everything from stablecoins to decentralized oracles. The total value secured by Quantstamp’s security services amounts to over 1 billion USD.
Over the last year, Quantstamp has been working closely with the Maker Grant Foundation who has sponsored security audits for over eleven promising DeFi projects including Kava, Ramp, and PoolTogether.
"Quantstamp's ability to quickly produce comprehensive and insightful audits has proven them to be an invaluable partner for our grantees,” says Richard Brown, Head of Community Development at Maker. “The importance of the extra layer of due diligence they provide can't be overstated."
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The Future of DeFi
In the early 90’s, it was impossible to predict what the internet would look like in 10 years, however, people paying attention knew that something big was on the horizon. Like the commercialization of the internet, we are still in the early days of DeFi and decentralized computing. Projects like Maker, PoolTogether, Ramp, Kava and Quantstamp will continue pushing the boundaries of what DeFi can achieve, pushing more and more value into the DeFi ecosystem. As time goes on, DeFi and the traditional finance system will mirror each other and start looking more alike. We are already beginning to see the signs.