In this edition of ICON Weekly, we’ll discuss the recent DeFi boom and bust cycle, and about how ICON can potentially become an alternative to Ethereum for building DeFi platforms.
History Always Repeats Itself
In 2017, it was “masternodes”.
In 2018, it was “staking”.
In 2019, it was “stablecoins”.
In 2020, the new buzzword in crypto is “mainstream adoption at last”.
Just kidding, it’s “DeFi”. Over the last few weeks, DeFi was the talk of the town on Crypto Twitter. The great DeFi boom and bust cycle started picking up steam with the launch of Compound ($COMP) and later yearn.finance ($YFI), a yield-aggregation platform built on Ethereum. Without getting into too much detail, Yearn Finance helps users maximize yield (APY) by intelligently moving tokens to the lending platform (e.g. Curve, dYdX, Aave, etc.) with the highest yield.
Over the course of the DeFi mini-cycle, which lasted just a few weeks, Yearn Finance’s governance token YFI saw a price surge from $900 to over $32,000. One thing led to another, and before we knew it, there were dozens of Yearn Finance clones. As you may have guessed, these clones also came with their own ERC-20 governance tokens which were easily swappable on the unregulated and extremely sketchy Uniswap decentralized exchange.
DeFi and Sushi
For a few days, the DeFi FOMO was unstoppable. In the first week of September, Uniswap reported over $1 billion of trading volume, which was 50% higher than Coinbase Pro’s volume. Say what you will about sketchiness and possible money laundering – $1 billion in on-chain volume for a relatively new exchange is an incredible feat no matter how you look at it. Unfortunately, this is crypto and scammers are always on the lookout for the latest shiny buzzword to leverage. In this case, Uniswap’s success brought about a host of clones like SushiSwap.
Alright, I kind of veered off topic for a bit. What does the DeFi craze on Ethereum have to do with Balanced, a DeFi product being built on ICON? In short, the transaction activity from Uniswap and other DeFi platforms brought the Ethereum network to a halt for many users. For a few weeks, gas fees were absolutely ridiculous – think $10 for a $50 trade on Uniswap. This made the Ethereum network pretty much unusable for everyone from individuals to exchanges.
The DeFi craze highlighted Ethereum’s lack of scalability. Think about it. What percentage of the world’s population is interested in crypto? Probably less than 1%. Now, out of that 1%, what percentage of crypto enthusiasts are swapping tokens back and forth on Uniswap? Again, probably less than 1%. With this in mind, the plain and simple truth is easy to see. Ethereum can’t handle a transaction bubble that involves 1% of 1% of the world’s population. How could it possibly handle real mainstream adoption without a scaling solution?
What ICON Brings to the Sushi Chef’s Table
That’s where alternative blockchain platforms like ICON come in. In 2020, building on Ethereum is a game of compromises. Ethereum is by far the most popular and documented smart contract platform. This means developers can start building on Ethereum without much friction. At the same time, Ethereum’s ease of use also makes it the perfect platform for scammers to launch inherently worthless tokens to take advantage of people’s emotions during times of mania.
While I hate the idea of scam tokens, I also see it as a necessary byproduct of decentralization. Platforms like Ethereum and ICON are permission-less, which means anyone can launch anything on the network at will. The issue with Ethereum is network congestion. When the latest market mania hits, Ethereum becomes an exclusive highway for whales who can afford high gas fees.
At the same time, “normal people” who want to use other Ethereum services and don’t care about swapping DeFi tokens are essentially priced out due to gas wars initiated by whales. As a developer of a blockchain-powered product, would you want to risk your company’s reputation on a network that’s unusable when 1% of 1% of the world’s population decide they want to swap “food tokens” around?
Last week, Balanced published a post detailing its five competitive advantages against Ethereum-based DeFi platforms.
- An easier user experience
- 0% interest rates
- Faster and cheaper transactions
- A clear price tracking mechanism for pegged assets
- Balance Token mining with clear value and ownership rights
Since Balanced is still in development, I can’t comment on most of these advantages for now. However, “faster and cheaper transactions” is definitely one we can discuss now. Compared to Ethereum, transactions on ICON are exponentially cheaper and faster. If you take a look on ICON’s blockchain tracker, you’ll see ICX transaction fees of less than a penny in USD terms, and fast two-second block times. ICON’s combination of decentralization, low fees, and fast block times provides a solid foundation for building human-usable DeFi platforms. I say “human-usable”, because the current solutions on Ethereum can only be used efficiently by whales and bots – the opposite of decentralization.
Right now, I think the number one factor that’s keeping developers from building DeFi products on ICON is the lack of precedent. The initial Ethereum-fueled DeFi craze burnt a ton of people from investors to legitimate developers. In the future, investors may look for alternatives on faster blockchain platforms to ensure their DeFi transactions don’t get outbid by whales with big pockets for gas fees. Similarly, developers of legitimate products may branch out and explore other platforms that offer better scalability in times of mania.
With this in mind, I think it’s the perfect time for Balanced to launch because the DeFi hype has died down over the past few days. People no longer have their greed-induced blinders on, which means they may actually pay attention to technologically-superior alternatives to Ethereum-based DeFi platforms. Once Balanced has set a precedent for “DeFi on ICON”, I wouldn’t be surprised to see more developers migrate their products and applications to ICON.