With the development of Rococo, Polkadot's parachain function will be launched soon. While Polkadot's own functions are gradually improving, the development of Polkadot's ecology is also changing with each passing day. As a booster of ecological development, how is Polkadot's DeFi ecosystem currently developing? In this article, we will give a panoramic overview of Polkadot's DeFi ecological development in advance.

DeFi is the abbreviation of "decentralized finance". Compared with traditional centralized financial services (such as banking, insurance, securities trading, etc.), DeFi is more open and has lower thresholds.

1. Stablecoin

Stable currency refers to a cryptocurrency whose currency value is relatively stable relative to its anchored assets. For example, the familiar USDT, DAI, BUSD, USDC, etc. are all stable currencies anchored to the U.S. dollar on Ethereum.

The price of cryptocurrency usually fluctuates greatly, which brings a high degree of uncertainty to transactions, and stablecoins can act as a medium of exchange to hedge against price fluctuations. This makes stablecoins an important infrastructure for the conversion and circulation of assets between DeFi projects.

According to the different stability mechanisms adopted, stablecoins can be divided into legal currency mortgaged stablecoins, encrypted asset mortgaged stablecoins, and algorithmic stablecoins. At present, the stable currency in Polkadot's ecology is mainly aUSD which adopts the encrypted asset mortgage model.

Acala aUSD

Acala's aUSD is a decentralized stable currency with multiple encrypted assets as collateral. The price is anchored to the US dollar, that is, 1 aUSD is always maintained at around 1 US dollar. Users can send and receive aUSD across any blockchain connected to Polkadot.

The aUSD stable currency is generated through Acala's stable currency protocol "Honzon", that is, users can open a collateralized debt warehouse (CDP), deposit their crypto assets as collateral in the collateralized debt warehouse, and obtain aUSD. The supply and demand of aUSD can be adjusted by stabilizing the fee rate, so as to achieve the stability of the price of aUSD relative to USD.

2. Borrowing

Decentralized lending eliminates intermediaries such as banks in traditional lending, lowers the restrictions and thresholds of lending, and allows people anywhere in the world to mortgage their assets for loans, or lend their assets to earn interest . In the DeFi ecosystem, borrowing can amplify funds, bring economic growth to the DeFi ecosystem, and drive the participation of other DeFi products.

Compound Gateway

Compound Gateway is built using Substrate, allowing users to upload assets from Starport contracts on various blockchains and use these assets as collateral to lend out any assets supported by the Gateway.

3. DEX

Compared with centralized exchanges (CEX), decentralized exchanges (DEX) transactions are carried out through the blockchain without intermediaries, allowing users to truly own their assets. At present, DEX has two more common models-based on order book and DEX based on liquidity pool.

Zenlink

Zenlink is the first cross-chain DEX protocol based on Polkadot, dedicated to building a new generation of cross-chain DEX network. Parachains using Zenlink DEX modules can quickly have DEX capabilities and share liquidity with other parachains. Zenlink DEX aggregator can link all DEX DApps to Polkadot, providing an easy, fast, and low slippage trading experience.

4. Synthetic assets

"Synthetic asset" refers to a combination of assets with the same value as another asset. Synthetic assets track changes in the value of the underlying asset.

Laminar

Laminar is an open financial platform that supports synthetic asset and margin trading. Bring traditional financial products such as gold, stocks, futures, and foreign exchange to the chain, and can carry out margin trading, and can also obtain income while trading.

5. Liquidity mortgage

Liquidity mortgage DeFi projects are produced with the PoS chain. The token holders of the PoS chain can use staking (staking) to obtain benefits while ensuring network security, but the assets in staking cannot be transferred during the lock-up period and the unbinding period, resulting in limited liquidity.

The DeFi agreement may also compete with Staking. If the staking interest rate is higher, then no one wants to participate in the DeFi agreement. Conversely, if the DeFi interest rate is high, and many people use DeFi instead of Staking, it will have a serious impact on network security.

The liquidity mortgage can release the liquidity of the assets in staking, so that users can not only obtain staking income, but also transfer and trade tokens at any time, and continue to perform DeFi operations such as decentralized lending and leveraged transactions. Thereby improving the activity of Polkadot's ecological DeFi without threatening the security of the network.

Bifrost

The Bifrost protocol allows users to use pledgeable tokens to cast vTokens (voucher tokens), which represent the ownership and income rights of the original pledge. In Bifrost, users can exchange PoS currencies into vTokens at any time to obtain staking income and liquidity, optimize PoS asset transactions, while retaining user governance rights and increasing the degree of decentralization of the original chain.

In addition, Bifrsot can also exchange vsToken to release assets locked in the parachain auction.

StaFi

The StaFi protocol allows to provide rToken liquidity solutions for PoS chains. The plan is to first be implemented on the three main public chains of ETH 2.0, Polkdot and Cosmos, to provide the liquidity solutions of rETH, rDOT, and rATOM for the three public chains themselves, and to provide the rToken protocol for the PoS projects on the above three public chains standard.

Acala Homa

The Homa agreement is Acala's agreement to release liquidity. Its main function is to help locked PoS assets to release liquidity and increase the ability of users to operate from assets to cash. L-DOT is a DOT bill generated through the Homa protocol. L-DOT is an asset combination of staking principal plus future staking income. The corresponding assets can be redeemed using L-DOT at any time.

Homa can also be used in conjunction with the stablecoin (Honzon) protocol in the Acala network to help users amplify their staking revenue.

1. Insurance
   The current decentralized insurance on the blockchain is mainly property insurance to protect encrypted assets. DeFi users are faced with multiple risks such as code vulnerabilities, liquidity risks, and key theft risks. Purchasing insurance for DeFi transactions can reduce these risks and protect the safety of funds.

TIDAL

TIDAL is a Balancer-like insurance market built on Polkadot, allowing the DeFi community to hedge the risk of any DeFi agreement or asset failure. TIDAL directly utilizes reserves to cover multiple agreements at the same time, allowing users to create custom insurance pools for one or more assets. By rewarding part of the deposit proceeds to insurance pool creators, the maximization of capital efficiency attracts liquidity providers, while competitive insurance premiums attract insurance buyers.

7.aggregator

Reef

Reef is an intelligent liquidity aggregator and revenue engine. Reef allows transactions to obtain liquidity from centralized exchanges and decentralized exchanges at the same time. Reef uses a revenue engine driven by AI and machine learning to provide services such as smart lending, lending, staking, and mining. After accessing Polkadot, Reef can aggregate DeFi projects built on different blockchains in order to maximize DeFi revenue.