DeFi or Decentralized Finance has been one of the biggest catalysts of the recent crypto bull market. From stablecoins, lending, trading, financial derivatives, and insurance protocols, DeFi projects have created new business models to innovate on the financial system. The total market value of current DeFi projects has grown exponentially from nearly US$700 million in early 2020 to more than $60 billion USD today.
The traditional financial system, however, remains hesitant to adopt many of these projects because the blockchains they operate on are either too slow, too expensive, or too centralized. Ethereum, for example, has an average transaction fee of $15 to $50 USD, and can go up to $300 during busy periods. This makes running daily financial applications impractical. There are centralized alternatives, but centralization poses challenges in building trusted financial instruments.
A new set of offerings is set to hit the market this month to build DeFi that is both decentralized and affordable, based on the Polkadot network, as well as its ‘sister’ test network, Kusama.
Polkadot, created by Ethereum Co-Founder Gavin Wood, aims to solve the problem of high gas fees by providing a heterogeneous multi-chain interchange and translation architecture, enabling customised side-chains to connect with public blockchains. As a sharded multichain network, Polkadot is able to process many transactions on several chains in parallel, eliminating the bottlenecks that occurred on legacy networks that processed transactions one-by-one. The PolkaDot ecosystem includes a range of DeFi applications, allowing all existing layer one solutions and applications to communicate with each other.
Of the upcoming PolkaDot network projects, there are three infrastructure projects that have received that have received the greatest investor attention: Acala Network (a DeFi Hub on PolkaDot), MoonBeam (a Smart Contract platform on PolkaDot) and Clover (an Operating System parachain on PolkaDot).
As a non-technical participant in the blockchain ecosystem, I wanted to understand the impact of this technology further and had the privilege of sitting down with the team at Clover. The development team is led by Toronto-based computer scientists Viven Kirby and Burak Keceli, while the company’s operations are led by Norelle NG, an up and coming female powerhouse, who was previously a partner at Bithumb Holdings and Head of Client Relations at Amber Group. Clover is backed by some of the industry’s top investors including Polychain Capital, Alameda Research, OKex Block Dream Fund, Hypersphere Ventures, Moonwhale Ventures, Kyros Ventures and will be available to the public through popular retail token platform CoinList.
Clover Finance is looking to create the lightest and fastest DeFi cross-chain infrastructure on Polkadot to tackle the challenges of speed and cost in the current DeFi ecosystem. In looking at alternatives, Clover chose Polkadot, because as a sharded multichain network, Polkadot is able to process many transactions on several chains in parallel, eliminating the bottlenecks that occurred on legacy networks that processed transactions one-by-one. To the everyday user, these improvements will be felt in speed of even the most complex transactions between multiple applications.
Clover further combined the power of Polkadot with Substrate, to realize low gas fees, high-speed trading experience and anonymity for its users, as well as Chainlink, to implement oracles to fetch trusted off-chain data to enable lending, borrowing and more. To achieve an even higher level of interoperability, Clover created “SPV chain simulation technology” to enable seamless cross-chain communication across financial networks. This element is valuable to developers looking to build new and innovative financial applications that connect various stakeholders, particularly in the traditional financial system.
As part of Clover’s secret sauce, Clover uses BIP-Schnorr compatible threshold signatures to provide a high level of decentralization. Many other alternatives either have semi-federated governance or require elevated transaction costs.
“Through driving improvements in the overall user experience, we are hoping that availability of infrastructural layers like Clover can become the perfect gateway for new users to participate in Decentralized Finance,” says Norelle Ng, Co-Founder at Clover.
Clover is putting together a series of products into a one-stop integrated DeFi experience, starting with the Clover Multi-chain Wallet, Clover Explorer and Clover Scan.
The Clover Wallet will allow users to connect to multiple public chains simultaneously, allowing users to view multiple assets without switching networks. The product will support Ethereum, Polkadot, Kusama, Binance Smart Chain, Avalanche and Fantom, to start. Users will receive a cross-chain compatible address for both Polkadot and Ethereum-based transactions.
“We believe that a custom-built DeFi infrastructure on Polkadot and Kusama will provide cross-chain compatibility, interoperability, and a seamless multi chain user experience that users are currently missing,” says Viven Kirby, Co-Founder of Clover.
The process of launching a ‘parachain’ project on the Polkadot network is highly competitive and requires significant capital. While companies compete for their spot, most choose to launch on Polkadot’s sister network Kusama. Kusama is considered the CanaryNet network for Polkadot, and it is expected that many of the projects who don’t win a spot on Polkadot will continue to live on Kusama.
To follow suit, Clover will launch its sister network Sakura on the Kusama mainnet. The launch will include a native decentralized exchange and a staking derivatives product to enable the emerging internet bond marketplace. Sakura will also incentivize developers familiar with both the Polkadot development framework and Ethereum development tools to build additional projects on the network.
“Clover, and its sister offering Sakura, offer a powerful smart contract platform that enables Ethereum developers and projects to migrate their contracts onto Polkadot. We believe that Clover will become the chain agnostic parachain candidate to support as many ecosystems running DeFi projects as possible,” said Helena Liu, Investor at OKex Blockdream Fund.
Over the next few months, blockchain investors and network participants will be able to participate in several offerings on PolkaDot, as an entirely new ecosystem is being launched. As innovators continue to try and solve for the short-comings of the financial system, it remains to be seen whether new developments on Polkadot and Kusama are able to elevate the DeFi ecosystem to pass the scrutiny of traditional investors.