On April 22, MakerDAO, known as DeFi’s global “ central bank, ” in partnership with the Centrifuge financial supply chain project, completed the first real asset loan to DeFi (decentralized finance). Centrifuge has helped New Silver, a loan pool, set up a mortgage repayment and transfer pool in its Centrifuge Tinlake protocol. They have just financed their first loan using MakerDAO as a credit facility.
This is a major step forward and an important step for DeFi. With the help of DeFi, real-world financial institutions can operate around the clock on smart contracts without trust issues, provide low interest rates on loans, and access instant liquidity with minimal capital costs. . This opens the door to a new trillion dollar market for DeFi.
DeFi is widely regarded as the second large-scale application of blockchain, which has caught the attention of mainstream financial institutions. Bank of America previously released a report suggesting it is more bullish about Ethereum than Bitcoin due to the existence of DeFi.
However, DeFi in its current form is not yet ready for traditional finance. Take the example of Ethereum, the most widely adopted project in the DeFi ecosystem. Cons such as high transaction fees, inefficient performance, and lack of privacy protection still abound.
The protection of privacy becomes an obstacle to the development of DeFi
Privacy is a major bottleneck, but it also provides a good opportunity for DeFi. Traditional investors, institutions and banks attach great importance to the protection of privacy. It is hard to imagine that they will place their assets on a completely open platform.
Protecting privacy can make DeFi loans more widely applied and speed up on-chain credit lending. DeFi’s current loans are usually over-secured because there is not enough information about the users. If privacy can be protected, then users can provide sensitive data, such as financial data and other behavioral data, to generate their own credit score without openly disclosing it. The calculated credit can then be used to grant credits to users.
Privacy protection can also better protect investors from attackers. Currently, all information about the DeFi protocol is public. Anyone can see what the user wants to do, as can the attacker. Many attackers will use this information to attack users for profit. If users’ transaction information is protected, they will not be attacked or arbitrated.
Current Status Quo of Blockchain Privacy Protection
As a financial application, there is an urgent need for DeFi to strengthen its privacy protection. Only in this way can DeFi become more secure and reach a larger market in the real world.
There are already privacy-focused solutions on the blockchain, such as the cryptocurrency Zcash, centralized “ coin mix ” service providers like MixerTombler and Bestmixer.io, and the decentralized “ mix of coins ” protocol. coins ” Tornado Cash, among others.
However, centralized parts mixing services are plagued by security concerns. Coin-shuffling technology can prevent information leakage about blockchain transactions to a large extent, but there are still efficiency bottlenecks and security risks. Besides, it doesn’t support custom programming, which means it can’t support secondary functions.
The problem with public cryptocurrency and privacy channels is that they are unable to improve smart contract support while ensuring private transactions. Ekiden tried to do this based on Oasis Labs, but due to its immature products and lack of sufficient support for developers, it is difficult for them to exert a strong influence.
Secret Network is currently designing a computer model of privacy in general smart contracts. However, only the on-chain exchanges have been released and the liquidity is very low. Also, Secret Network needs to use Rust for development, while there are only a few Rust developers, and they mostly focus on the Polkadot ecosystem.
The above projects also face other common issues such as poor on-chain ecosystem design and cross-chain transaction issues. Even though privacy-focused solutions are mature, they are useless if they don’t have strong ecosystems.
Among the decentralized solutions, the best known is the Tornado.Cash project, built on the Ethereum chain. It uses zk-SNARK (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) technology and can send ETH and ERC-20 tokens to any address in a way that cannot be found. However, it can only support ETH and DAI, cDAI, USDC, USDT, WBTC. Another big disadvantage of Tornado is that it consumes too much gas. A private operation of 1 ETH may require at least 20% more gas (on a conservative estimate), which greatly hinders users from adopting the project.
In general, not all of these projects have a single privacy solution, but it’s important to realize that in the blockchain space, only projects that can guarantee full privacy are really meaningful.
Privacy Protection of DeFi and Onion Mixer
Onion Mixer offers an efficient and safe solution for mixing parts. It is a decentralized protocol for private cross-chain transactions, which can support DeFi transactions over multiple heterogeneous chains. It follows CoinJoin’s idea of ’coin mixing’ but also incorporates zkSNARK zero-knowledge proof technology, which can break the connection between the user’s deposit address and the withdrawal address, in order to achieve a private transaction for all DeFi components.
Decentralization and the crossing of heterogeneous chains are the development trend and demand of the DeFi market today. The Onion Mixer technology mechanism makes it more compatible with DeFi, that is, it has more use cases.
Nowadays, the interoperability of DeFi projects is increasing and all kinds of assets can be used in DeFi protocol. The Defi space also shows a tendency for the synchronous development of several chains, and the inter-chain active transfer increases gradually. In addition, users’ demand for privacy has become more urgent. Onion Mixer’s multi-chain deployment and cross-chain transaction technology provides privacy services to more assets, which sets it apart from projects like Tornado.
As DeFi grows more prevalent and attracts more traditional institutions, general requirements need to be met and Onion Mixer has the capacity to do so. Due to the large transaction volumes in traditional institutions, there is a strong requirement for anonymity in coin mixing protocols. If there are not enough coin mix transactions, there will be a limit to anonymity. To solve this problem, Onion Mixer designs sustainable tokenomics, which sufficiently entices users to participate, thus increasing the total volume of anonymous transactions. The anonymous collection of the Onion Mixer protocol is called “mixer”. The mixer allows users to conduct private transactions at any time. The “mixer” is different from Tornado’s “pools”. The “pool” includes only one type of token, while the “mixer” supports multiple types of tokens, which contributes to better privacy protection.
To open up new markets, DeFi needs to upgrade privacy protection comprehensively. Traditional institutions have already prepared strict risk prevention measures, such as futures, options, swaps, etc. They don’t want their on-chain investment practices exposed or monitored, as this can help their opponents attack them. Therefore, they urgently need privacy protocols to protect their transactions, a need that will attract more users to DeFi. Onion Mixer can connect multiple mixers together to form a cascade mixer to enhance its privacy protection ability.
Due to the decentralization of the blockchain, data is no longer controlled by a single center. Privacy protection will ensure that the value of this feature stands out. As the value of personal data is further explored, developed and used in the future, users can not only use privacy protection to protect themselves, but also control access to data, empowering users. Onion Mixer is part of this demand trend.
Without a doubt, DeFi has been revolutionary and widespread. Future DeFi demands will force the development and upgrade of privacy protection, which in turn will benefit DeFi. The demands for privacy and DeFi are mutually reinforcing and will bring better financial services to users.
Image by Thomas Breher from Pixabay