Author: Kunal Ganghi

Categories
DeFi Basic

DEXTF – The Democratisation of Value/Power and Web 3

DEXTF - The Democratisation of Value/Power and Web 3

The internet, since its inception, has revolutionized the computer and democratized information, enabling instant access for the world to see. Web 1 sets its roots in the late 60s and early 70s, when it was simply a connection between a handful of computers. Since then, the web has grown exponentially, developing into the second phase of the web, Web 2 has managed to touch the lives of almost every individual today. Nowadays, Web 3 is at the centre of everyone’s attention, but what is the history behind Web 3, why does its development matter? It all comes down to decentralisation and democratisation power and value throughout the network’s participants.

Web 1 refers to the beginnings of the World Wide Web. For the first few decades, the internet remained a rare commodity and was available only to the select few majorly who could afford it and were technically sound to use it. This period also had limited content creators, and a vast number of users were only content consumers. The content created during this period was static and was majorly informative and less interactive. Personal and single-page web pages were standard in this era hosted on ISP-run web servers or free web hosting services. Whilst the functionality of Web 1 was lacking, the decentralised nature of the web meant that the value accrued to the users and builders of the networks, such that active individuals within networks benefited from participating in the networks they influenced.

As the world entered the 1990s, Web 1 evolved into Web 2, shifting away from being a content delivery network and into a more dynamic, user-oriented and engageable network. Furthermore, the number of users who now had access to the internet also increased exponentially, changing the whole dynamics of the world wide web, and starting the era of Web 2. While the Web’s back-end technical aspect continued to grow during this period on the base of Web 1, the way the web pages were designed and used changed significantly, Web 2 was a significant upgrade to its previous version as the content now was more user-generated, usable, and interoperable.

 

However, with Web 2 came centralised services by large corporations (Google, Apple, Amazon, Facebook). Whilst the networks offered in Web 2 are much more advanced and useful than those offered in Web 1, the decentralised aspect of the web has been stolen from its users and developers, instead giving power to a handful of large corporations. This is a clear issue, as centralised platforms follow a predictable life cycle that starts with them attracting participants to their platform and ends with them extracting value from the participants as their power hold over the participants grows over time. Similarly, centralised platforms will stop cooperating with network participants and start competing with former partners for the top spot within their industry, and extract as much value as possible from their participants, who have now become reliant on that specific centralised platform. Within Web 3, the ownership and power is decentralised. Users and developers can own slices of internet services through the ownership of tokens, democratising the power and value throughout the network and avoiding the exploitation of its participants by a single company which ends up fighting its own users and partners for the largest slice of the cake.

 

Currently we are at the beginning of a new era, and Web 3 is the natural next step in the evolution of the web, combining the decentralised, community-governed fundamentals of Web 1 with the functionality of Web 2. Now is the time to get involved with Web 3 and become an influential participant within a network. Within Asset Management, DEXTF is at the forefront of the development of Web 3.0 within its industry. Traditionally, starting up a fund takes a significant amount of capital with painstakingly slow bureaucracy, and regulation, creating high barriers of entry into fund management. DEXTF is democratising the industry, breaking down these barriers and enabling users to create a fund within minutes, at a much lower cost and with greater exposure to innovative crypto assets than traditional means. We, at DEXTF, offer a non-custodial, trustless and permissionless solution which democratises wealth across all users within our network. After developing the world’s first oracle-less asset management protocol on Solana, we have made asset management that much more accessible to our community members. With the help of Web 3 through the Solana blockchain, fast, cheap transactions will help us in achieving our goal of democratising the asset management industry.

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DeFi Basic

Metaverse: Digital Real Estate

Metaverse: Digital Real Estate

As humanity entered the crypto rabbit hole, there were a few things that we could all imagine ending up on-chain. The crypto community as a collective has matured and grown to accept DeFi and its associated innovations such as flash loans, synthetic assets, AMMs, or atomic swaps but also NFTs, which began with the so-called “jpegs,” which arguably differ in rarity.

So here is the thing. How do you marry DeFi to the convenient versatility that NFTs can provide? Enter the digital real estate in the metaverse. If you understand property markets in the real world, you might also have a chance to make it in the metaverse. However, as with all innovations, the volatility that you might experience could mutilate your virtual senses.

But how can virtual real estate be valued?

Firstly, what needs to be understood is the metaverse’s role, especially in the context of billions of people being “forced” to confine within the physical world of their homes. The metaverse, which, for those familiar with gaming, is an open-world environment where “virtually” (pun intended) anything could take place. You want to visit a museum to learn more about the latest NFT art pieces, check. You need to get the latest fashion designer clothing for your avatar; check. You need to purchase land to build your mansion, check. You want to attend a Snoop Dogg concert, check.

So virtual real estate fits into this new parallel universe where anyone has the chance to build what they always wanted in real life and hope to be able to live in it one day as augmented reality and virtual reality advance.

That’s not it, though, because virtual real estate won’t sell itself, and here is the irony: you might require real estate intermediaries such as consultants, agencies, and marketers to help you with the purchase or sale.

Subsequently, as the traded value grows, it would make sense to aggregate this value under REITS (Real Estate Investment Trusts), which are real estate funds backed by these assets. Today this is already possible. Fractionalizing NFTs is not only a meme, although it’s best known as of now solely as that.

This last consideration is exceptionally crucial for asset management protocols because the interplay between traditional real estate and virtual real estate will boost the lagging returns delivered in the past two years in the real world.

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DeFi Basic

Metaverse 2.0 or 3.0?

Metaverse 2.0 or 3.0?

In the words of Satya Nadella, CEO of Microsoft, the metaverse enables computing to be embedded into the real world and for the real world to be embedded into computing.

https://twitter.com/satyanadella/status/1455624165201887234

But wait a minute, isn’t the metaverse a word that popped up in the NFT craze only recently in the context of crypto? Why have corporations been so quick in appropriating the phenomenon?

https://twitter.com/MorningBrew/status/1455589610067828745

Among the many opinions, one that stands out is that held by Emin Gürer, founder of Ava Labs, who thinks that the ultimate goal for these companies is to boost the targeted ads business. Because if you think about it, you could literally spend hours in the metaverse without ever leaving your home while still churning valuable behavioral data at the service of the so-called surveillance capitalists.

So why has the metaverse been celebrated profusely, especially in relation to NFTs?

This has to do with the play-to-earn narrative that was spurred by on-chain gaming and DAO-led networks that are here to weave the future of work by creating the web 3.0 version of the metaverse. The fundamental difference between web 3.0 and web 2.0 is that the latter does not focus on ownership but on interaction through which important data is gleaned from and returned to the user as a revenue-generating ad for the company and not the user. With web 3.0, the user has the right to a slice of that revenue as they contribute to the network/metaverse.

Therefore, the metaverse, which is discussed mostly around the creators’ economy, empowers a large group of the population that for most of the time was under-appreciated or had no platform and/or opportunity to manifest their abilities. The metaverse represents the world that we always dreamed about, where your identity and all your worldly attributes have no meaning unless you want them to.

Millions in investments both in crypto and in the real world are converging to an agreement that the metaverse is what would propel humanity forward. Who knows, world decarbonization might be greatly accelerated if we built more forests rather than business districts because having an office or a virtual land in the metaverse would mean a lot more.

 

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DeFi ASSET MANAGEMENT

ETFs and Bitcoin

Bitcoin and ETFs

Yesterday (20 Oct 2021), the impossible had happened. Bitcoin ETF by ProShares (aka “BITO” ticker)was approved by the SEC under the mutual fund rules, which requires funds to provide investor protection.

On its debut, the ETF recorded the second-best performance in terms of volume traded, touching ~ US$ 1B.

Is the hype justified, though?

Firstly, let’s define quickly what an ETF is. An ETF is an exchange-traded fund, which means that units of funds traded to/from an asset management company can now trade on an exchange just like any other company share. ETFs have gained popularity because of their lean cost structure, with low expense ratios (typically < 1%), attracting significant investor capital.

So why create an ETF for Bitcoin when you could purchase the Bitcoin itself?

BITO is a Bitcoin Futures ETF?

Futures are financial derivative contracts that allow investors to speculate or hedge on the future prices of an underlying asset.

BITO is traded in the New York Stock Exchange (NYSE). Although the interest in this product is genuine, there are some palpable limitations, which may not be immediately felt as necessary:

  • no physical redemption
  • not traded 24/7 (although an alternative trading platform called Blue Ocean is bridging this gap)
  • not custodial
  • not collateralized with real Bitcoin

The ETF is essentially providing exposure to an asset that represents freedom from institutional go-betweens, yet, the hype has obfuscated the urgent need to have assets traded globally and across time zones without stops.

By purchasing this ETF through brokers, not only do investors abandon the idea of managing their finances by self-custodising, but they wouldn’t be able even if they wanted to: futures are not collateralized with Bitcoin. Futures are usually meant to be cash-settled as the primary purpose is to either hedge other positions (most of the time) or speculate.

Several projects in DeFi are tokenizing funds and listing them on decentralized exchanges, creating what are known as decentralized traded funds.

DEXTF is one of these protocols that provide portfolio tokenization capabilities. XTF2s (all fund tickers’ heading starting with this acronym) are collateralized with tokens, redeemable for the same tokens, and most importantly traded 24/7 because decentralized exchanges don’t take rest days.

Additionally, creating XTF2 is a permissionless operation, quickly done in a matter of seconds through the dApp. The platform has recently pushed the rebalancing module (read “The Power of Rebalancing”), enabling funds to be dynamic rather than maintain their fixed allocations.

In summary:

  • physical redemption
  • traded 24/7
  • custodial
  • collateralized with real assets

Investors can create carbon-neutral strategies and tokenize funds by pairing $MCO2 (tokenized carbon offsets) to your favorite tokens.

A first iteration is the green bitcoin.

https://twitter.com/dextfprotocol/status/1397951491147649026?s=20

 

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DeFi ASSET MANAGEMENT

Capital Structured Tokens

Capital Structured Tokens

In the investment world, the two critical factors that investors consider are risk and return. While everyone wants to fetch the highest return with the lowest risk for their investments, that is never the case. Risk and returns are positively correlated- the higher the risk, the higher the return, and vice versa.

 

Markowitz theorizes this framework in his Modern Portfolio Theory.

 

Financial Engineers and Wall Street Stalwarts have tried multiple ways to develop products that provide the best of both worlds (see concept explainer in Newsletter #14). Still, it’s not a one solution fits all situation, and now we have a variety of structured products, optimizing for risk and return but at the expense of transparency.

 

Structured products are essentially a basket of assets that returns an optimized risk-return profile. A typical structured product is a capital protected note built with two components:

  1. Interest-bearing bond (low risk)
  2. High growth derivative (relatively higher risk)

 

The lower risk component provides capital protection through its yield, while the riskier derivative sets the participation rate.

 

The participation rate is the rate at which a note holder gains when the underlying increases in price. 

 

Fund diversification benefits are delivered when the underlying assets also have a diversified payoff. That means you need to combine different asset classes.  

 

Bitcoin and crypto have been correctly lumped together as an asset class because Bitcoin had an enormous pricing power over the remaining crypto market. A reality that is changing over time as financial payoffs of different nature is tokenized.

 

https://twitter.com/BTC_Archive/status/1411641837706743813?s=20

 

The above tweet is no longer accurate. However, Tradfi may still have the extreme view that crypto is a $ 2.3T market in bubble.

 

And when these structured product dynamics are applied to crypto, things become more attractive. Investing in crypto may seem appropriate only for degens (abbr for degenerates, read this poetic definition of it here), however volatility is what attracts traders with their capital to grow this space. Everything needs bootstrapping, and to start a new industry, financial volatility provides the best risk-reward environment to get achieve growth for everyone involved.

 

Volatility however is not great when it comes to the actual consumption of the services that crypto project may provide. In fact it is inversely correlated to its utility. That’s why liquidity providers exist to reduce slippage to trade in and out of assets. Insurance against smart contract bugs and hacks are helping to reduce the risk as we speak. Options markets to provide indeed more avenues of exposure to crypto assets. 

 

The equivalent of structured products in DeFi are structured tokens. 

The first ever structured token was developed by DEXTF Protocol, that launched the Structured Floor Token (SFT) on ETH. The SFT on ETH returned your original capital if the price was below the strike price at expiration and profit as if you were holding 1:1 ETH if above the strike price.

 

Today we have a better understanding of what a floor price as evangelized through NFTs on Opensea. SFTs are therefore capped on the downside and unlimited on the upside.

 

While these may sound like fantastic products, these tokens would be intended only for those investors who want to have:

  • A diversified portfolio and want to protect their principal while still gain exposure to large uponly movements 
  • An exposure to a highly performant cryptocurrency like Ethereum but wouldn’t want to invest in the same directly

 

So if we look at it at a glance- 

  • Structured tokens are a hybrid investment made up of a bond and an option
  • They offer a relatively higher return considering the risk they mitigate 
  • Structured tokens are a low-risk investment and may receive up to 100% capital protection depending on the market condition and other factors 
  • This product is ideal for investors who wish to enter the crypto markets but are afraid of volatility and the risk it brings with it. 



Categories
DeFi ASSET MANAGEMENT

Bonding Curves

Bond, bonding, bonding curves

Bond, bonding, bonding curves. A quite abstract word, to begin with, is starting to appear more frequently in the DeFi realm.

A bond is a relationship between two parties.

In the context of DeFi, many projects have started to consider using bonding to bootstrap token liquidity and demand more sustainably.

One way of understanding this is that bonding with someone assumes you have a vested interest.

Similarly, a protocol can purchase “liquidity bonds” or “reserve bonds” in exchange for the native token that is sold at a discount to the buyer.

Liquidity bonds are liquidity provider tokens. Reserve bonds are other tokens that are not LP.

The native token purchased is said to have a discounted “bond price”, which vest over a period of time. The cool thing though is that there exists a secondary market for the bonds that can affect the discount that the protocol might offer on the subsequent bond sales.

Bond sales generate profit that can be distributed to stakers.

This is an extremely powerful idea because, with liquidity bonds, the protocol purchases liquidity which means that it owns the pools, ensuring both stability and profitability. All fees generated by trading utilizing the pool are then distributed to stakers.

If compared with liquidity mining, the bonding ensures that interests between the protocol and users are aligned. Liquidity pool tokens are not owned by the users, but they now have exposure to the native tokens that are vesting and compounding if they are also staked.

But bonding curves are also fair…

Yes, bonding curves are also about relationships and specifically between supply and demand.

Bonding curves are used by projects to raise funds, fairly and deterministically, as these are mathematical formula built into smart contracts that have mint and burn functions.

Traders interact with the bonding curve as they buy and sell.

Bonding curves are Automated Market Makers, because the counterparty of a trader is the smart contract, as opposed to another trader as it works with orderbook-based exchanges where bid and ask has to be matched by a centralized party. It’s also fair because, at any time of the process, anyone can determine the price at which the token is going to sell. When token supply is low, the price is also low. Price increases deterministically as more tokens are minted, providing the early birds a sizable return.

Despite the price automation, the curve can be customized and include fees that can then be used by the protocol to bootstrap liquidity or community initiatives.

Fees can be charged on:

  • spreads between buy and sell
  • swaps (against ETH or stablecoins)
  • transaction fees with the bonding curve



Categories
DeFi ASSET MANAGEMENT

Synthetics

What are synthetics?

Synthetics are derivative assets whose value can be custom-built to mimic a particular situation.

We refer to a situation because a situation can either be temporary or persistent, in which case we say that something expires or it doesn’t.

Options are synthetics as we say these can be written and sold.

If you wanted to take a position on 1 BTC without forking out 55k, you could long a call and sell a put at the same strike of, say 55k.

In this situation, by longing a call with strike 55k, you’d be purchasing BTC if the spot price is greater than 55k. Conversely, by selling a put, you’re still long on BTC because the put buyer will be short (as he/she hopes to gain a profit if prices fall, while you wish to cash in on the premium). Therefore, if the price fall below 55k, the put buyer will sell the BTC to you at 55k. In both cases, you end up with BTC at 55k by paying the difference between the premium received (selling the put) and premium paid (purchasing call).

Options are just an example of the potential of synthetics. Issuing synthetic assets is no longer the prerogative of investment bankers. Anyone with an internet connection can create synthetic assets without knowing anything other than the price of the asset it’s tracking.

In crypto, several projects have figured out that by locking some collateral capital, you can guarantee the creation of any asset that you can imagine. What used to be a thought experiment is now a reality; you can gain exposure to gold, FX, real-world stocks without the need of a broker that necessarily follows an opening and closing time. However, a synthetic asset position does not give you, on first analysis, the same peace of mind that an actual spot position gives you. You can hold a spot position for as long as you need, while a synthetic position can be liquidated if undercollateralized or if it expires when overdue.

Collateralization drives DeFi value capture, as it represents the value locked in a protocol/platform.

While a relatively big over-collateralization ratio minimizes systemic risks, it might not be sufficient to withstand the violent price action in crypto. This is especially true when the collateral is different from the asset it’s tracking.

Imagine if you have a synthetic position on BTC that you can mint by collateralizing ETH. Let’s assume that the collateral ratio is 2. For every BTC you mint, you need to deposit 110k in ETH.

Now you have 1 BTC.

Suppose that next week BTC goes to 100k while ETH suffers and halves in price. Your collateral suddenly is valued at 55k, but your synthetic BTC is now worth 100k. The collateral ratio has fallen, and now you need 200k to guarantee that the synthetic BTC is liquid if you want to cash out. How do you mitigate this issue? Collateral could be converted to BTC if it falls below a certain threshold, stopping the collateral bleeding.

Synthetics is an up-and-coming section of DeFi as its value derives from composability through payoff engineering. As a result, incentive schemes can be built for example, to align a community around achieving a certain TVL on a platform by distributing synthetic rewards that have binary payoffs based on whether a target is achieved or not.

Although use cases are not limited to trading assets, you could build a contract with its conditions tied to payoffs that incentivize the parties to comply with the agreement through oracles that observe the state of the world.

Therefore, synthetic assets are a compelling human invention that seeks to create what exists but are too expensive to buy outright and arguably makes abundant what is scarce.

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DeFi ASSET MANAGEMENT

DeFi Markets

DeFi Markets

Everything you need to know about DeFi markets 

  1. DeFi market: AMM (Automated Market Makers a.k.a. DEXes)

 

DeFi (read Decentralized Finance) markets refers to a collection of decentralized digital marketplaces where DeFi services are exchanged, often incentivized using tokens as rewards (chicken-and-egg problem in crypto). 

 

DeFi discards the idea of centralized financial intermediation. 

 

What does that mean? By joining DeFi you’re not exactly disintermediating the middleman just yet, in fact, DeFi replaces it with a black-box smart contract which is supposed to abstract away all the back-end complex operations to spit out only what gets investors excited about.

 

Everything that required a trusted centralized party to guarantee the authentic and ethical execution of an instruction between customer and service provider is now replaced by code within a fair smart contract.

 

DEX trading, borrowing/lending, stablecoins, derivatives, fund management, insurance, payments and lottery. As the sector matures, these macrocategories within crypto will increasingly be treated as different asset classes for the purpose of diversification.

 

DeFi markets would not be complete without an easy way to exchange value for value (among fungible tokens – for now) through AMMs or Decentralized Exchanges.

 

Automated Market Makers( AMM)- The differentiator

 

https://twitter.com/EconsDesign/status/1420797995134586884?s=20

 

An Automated Market Maker (AMM) is a smart contract that wraps pools of assets and facilitates trades permissionlessly for anyone.

 

An AMM is decentralized because:

  • Anyone can decide to supply liquidity to improve the slippage on a market pair
  • Anyone can trade provided that you have a wallet and sufficient network tokens to pay for gas
  • It cannot be shut down
  • All trades are recorded on the blockchain, thus giving everyone the necessary information to trade

 

AMMs are therefore not orderbook based but liquidity pool driven platforms. 

 

One of the earliest projects in the spac 

It’s a kind of decentralized exchange (DEX) in which the price of assets is determined by a mathematical formula (each AMM has a different formula which is why each AMM is different from the other) which also has a progressive revision to the age-old method where pricing algorithms decide the price of assets. AMM also replaces the traditional order book system that keeps track of all purchase and sell orders used to duplicate the price and quantity of crypto assets. The matching of buyer and seller orders takes up part of the traders’ valuable time and has several serious drawbacks, such as slippage and lag in price discovery.

 

How does an AMM work?

 

In every trading exchange, an Automated Market Maker functions similarly to order books. However, the user doesn’t require a counterparty on the opposite side to complete the transaction. Instead, smart contracts interact with you, automating the trade and creating a market for the user so he can save on the valuable time waiting for a counterparty. In AMM’s, the trading takes place directly between user wallets with no requirement for a buyer or seller, thus allowing digital assets to be traded in a permissionless and automatic way by using liquidity pools. AMM users supply liquidity pools with crypto tokens, whose prices are determined by a constant mathematical formula, thus enabling the transfer of an asset from the seller to a buyer at a fair price.

 

The variations in  AMM models

 

While several AMM’s have come up with their unique formula, three dominant AMM models have emerged to prominence: Uniswap, Curve, and Balancer.

  • Uniswap’s pioneering technology allows users to create a liquidity pool with any pair of ERC-20 tokens with a 50/50 ratio and has become the most enduring AMM model on Ethereum.
  •  Curve specializes in creating liquidity pools of similar assets such as stablecoins. As a result, it offers some of the lowest rates and most efficient trades in the industry while solving limited liquidity problems.
  •  Balancer stretches the limits of Uniswap by allowing users to create dynamic liquidity pools of up to eight different assets in any ratio, thus expanding AMMs’ flexibility.

 Advantages of AMM

As we have seen how AMM radically changes some concepts of traditional centralized exchanges, there are several advantages to come with these changes. These are

  • AMM has to the creation of a lot of New trading models
  • Price slippage between the execution of trades reduces down dramatically to as low as a penny
  • Orders are created in seconds and for a fraction of the cost.
  • Latency on trade calls also diminishes drastically and can now be measured in milliseconds.
  • The AMM help in developing high comparative liquidity thanks to its liquidity pools
  • AMM’s reduce the ability and number of bad actors doing things like front-running, price manipulation, and wash trading.
  • AMM’s reduce the price fluctuation to acceptable levels, which in turn leads to less slippage.

 

Disadvantages of AMM

Like everything coin has two sides, AMM’s too have disadvantages. 

To list a few

  • A disadvantage of this lack of oversight and lack of legal framework, which might be there as there are no governing authorities to monitor transactions, offer assistance, or provide a legal framework or redressals systems.
  • As more financial transactions are conducted via decentralized markets, they can pose challenges for regulators and legal enforcement. In comparison, centralized markets give regulators a clear path for taking action, if necessary, regarding trades that might be suspect

 

Categories
DeFi Basic

History of Web 3.0

History of Web 3.0

How web evolved and paved the way for the new financial world!

The internet, since its discovery, has revolutionized the computer and democratized information which is now available to all. With its humble beginnings in the late ’60s and early 70’s, when it was a connection between few computers, the internet has grown multi-folds, touching the lives of every individual today. While the next couple of decades remained steady since its inception, the actual steam to the internet’s growth engine came in the ’90s when the popularity of the internet skyrocketed, and the content moved from being more dynamic and user-controlled and oriented. As this trend made the internet famous, the ammunition for the next level is already getting ready when the internet will be more decentralized driven by artificial intelligence and 3D graphics, making it more agile, better connected, and universal. 

While the above paragraph speaks about the past, present, and future of the internet in a single go, in reality, the difference between how the internet functioned and will function is a little more complex- both in terms of the content aspect, user reach and the technical aspects. Let us dive into a little more detail to understand each version of the internet and its difference. 

Web 1.0  (1970-1990)

Web 1.0 refers to the humble beginnings of the World Wide Web. For the first few decades, the internet remained a rare commodity and was available only to the select few majorly who could afford it and were technically sound to use it. This period also had limited content creators, and a vast number of users were only content consumers. The content created during this period was pretty static and was majorly informative and less interactive. Personal and single-page web pages were pretty standard in this era hosted on ISP-run web servers or free web hosting services.

It wouldn’t be wrong to say that WEB 1.0 was more of a content delivery network- an easy platform to transfer information from one person to another via websites and webpages, and the content was served from the server file system.

Web 2.0 (1990-2018)

As the world entered the last decade of the previous century, the internet started changing shape, and the focus shifted more towards the consumer. The number of users who now had access to the internet also increased manifold, thus changing the whole dynamics of the world wide web and being known as Web 2.0. 

While the Web’s back-end technical aspect continued to grow during this period on the base of Web 1.0, the way the web pages were designed and used changed significantly, Web 2.0 was a significant upgrade to its previous version as the content now was more user-generated, usable, and interoperable. It allowed free sorting of information and permitted users to retrieve and classify information. Web 2.0 also opened doors to interaction and collaboration between users, thus enriching the whole internet experience where users could do much more than just sharing information.

As the way the data was consumed started changing, the web browsing technologies also leveled up and started using more AJAX and JavaScript frameworks, thus further enriching the user’s experience. JAVA was introduced in the year 1995 and helped in delivering lightweight ways to provide client-side programmability and richer user experiences by creating small applets which generated dynamic content. However, the potential of the web to deliver complete-scale applications didn’t hit the mainstream till Google introduced Gmail, quickly followed by Google Maps, web-based applications with rich user interfaces and PC-equivalent interactivity. The collection of technologies used by Google was christened AJAX. 

Web 2.0 also introduced several tools and platforms that allowed users to interact much more with the applications with ease without having to spend hours writing codes as they had to in Web 1.0. This also expanded the use-case of the world wide web to the user who could now share multimedia over the internet and could do things like podcasting, blogging, tagging, social networking, among others. 

Web 3.0- A Look into the Future

As we look at the history of the internet and where we stand today, we can gauge that a more semantically intelligent web could hold the future. While it would be too early to define the whole of Web 3.0 today, the upcoming version could use and integrate many other innovative pieces that are present today, including peer-to-peer (P2P) technologies like blockchain, open-source software, virtual reality, Internet of Things (IoT), and more. 

Currently, many applications are restricted by design and run only on one operating system. Web 3.0 could enable applications to be more device-agnostic and interpretable, meaning they would run on many different types of hardware and software without any added development costs.

As we look at Web 3.0 in the making, it sure looks to be heading in a direction where the Internet would become more open and decentralized. In all probability, it will be more potent than its predecessors and some of the features that could contribute to its superiority would include decentralization, increased interconnectivity, more efficient browsing due to semantics and metadata from Web 2.0, improved advertising and market, and better customer support. 

While exciting times lie ahead with Web 3.0 in the making, the journey that the internet has gone through in its various phases of evolution is commendable and leaves no doubts that it will keep on growing as technology, content and the way data is produced and consumed keeps on changing. While it’s still not easy to define Web 3.0 yet, innovations in other technological fields have already set its making in motion.

Categories
DeFi Basic

Key DeFi Terms

DeFi Key Terms

Get introduced to building blocks of DeFi

Key terms in DeFi

  • AMM: Automated Market Makers (AMMs) have disrupted the traditional way that buyers and sellers come together. They allow digital assets to be traded in a permissionless and automatic way by using liquidity pools rather than a traditional market of buyers and sellers. AMM users supply liquidity pools with crypto tokens, whose prices are determined by a constant mathematical formula. So, instead of two parties coming to an agreement, traders can instead interact directly with a smart contract and execute the trade


  • APR: APR represents the annual rate charged for earning or borrowing money. APR does not take into account the compounding of interest within a specific year. It is calculated by multiplying the periodic interest rate by the number of periods in a year in which the periodic rate is applied. It does not indicate how many times the rate is applied to the balance

APR is calculated as follows:

APR = Periodic Rate x Number of Periods in a Year

 

  • APY: APR also represents the rate charged for earning or borrowing money but does take into account the frequency with which the interest is applied—the effects of intra-year compounding. 

Here’s how APY is calculated:

APY = (1 + Periodic Rate)Number of periods – 1

 

  • Borrowing Rate : This is the rate a borrower will pay to borrow tokens. The Borrowing rate will always be higher than the Lending rate.
  • CEX: Centralized Exchange. Even though these exchanges cater to decentralized digitized assets, they act as centralized authorities and take custody of a user’s funds on deposit.  Binance and Coinbase are examples of CEXs. 

 

  • Collateral: This is an asset used to secure a loan. In the traditional world of finance, one might put up their home as collateral to secure a cash loan. In DeFi, one puts up cryptocurrency tokens as collateral to borrow other tokens.


  • cTokens: These are Compound’s native tokens. When a user supplies assets to the Compound protocol, they receive cTokens. These, in turn, represent claims on the asset pool.
  • Deflationary Token: Tokens are “deflationary” if a percentage is permanently removed from the marketplace over time. Buy-backs and burns are popular ways of destroying tokens. This causes scarcity which hopefully makes the price rise
  • dApps: Decentralized applications. These are digital apps that run on a blockchain outside the control of a central authority.
  • DEX: A DEX, or decentralized exchange, is a type of cryptocurrency exchange. It operates like a stock exchange, except smart contracts run it. These smart contracts enforce rules and execute trades. Unlike a Centralized Exchange (CEX), a DEX does not take custody of a user’s funds.  

 

  • ETH: ETH stands for Ethereum tokens. These are digital assets built on the Ethereum blockchain.


  • Flash Loan: Flash Loans are futuristic and next-generation DeFi and native to the crypto space. A borrower can take out a flash loan with no collateral. However, it must be repaid within the same block, or the entire transaction is canceled. 

 

  • Flash Swaps: Similar to Flash Loans. A user can withdraw a token and use it before paying for it.
  • Gas: Gas is used to calculate fees on the Ethereum network. Every smart contract execution on the Ethereum network requires gas. When the network is more congested, gas prices are higher.