As blockchain initiatives expand, decentralised finance (DeFi) was one of the most active sectors of blockchain over the last year.
DEXs and DeFi platforms allow people to engage in the global digital economy while disrupting the traditional financial system.
But there’s a caveat. Most DEXs are simply too slow and lack the liquidity needed to gain a convincing user base.
However, according to Loi Luu – CEO of little-known DEX Kyber Network – that won’t always be the case.
While prices continue to be volatile, the exchange market is picking up speed and laying the foundations for a global network that allows for interoperability.
Just last month, Kyber Network surpassed all other DEXs with a 308% surge in trading volume.
Decentralised finance is on the rise
These sort of statistics lead DeFi pioneers such as Luu to conclude that decentralised finance is on the rise – and that people should start preparing for a decentralised economy. But what is Kyber Network doing differently and how does it overcome the omnipresent dearth of liquidity in DEXs?
By drawing in liquidity from various sources. Luu states:
“Kyber’s on-chain protocol aggregates liquidity from diverse sources called Reserves. These support over 70 different ERC-20 tokens. Reserves are incentivised to provide liquidity for their tokens as they can earn from the spread in every transaction that they facilitate.”
He continues: “In addition, Kyber is able to integrate liquidity pools from other platforms to obtain even greater liquidity for tokens with high demand. For instance, Kyber recently integrated Uniswap’s liquidity pool to set up a hybrid Reserve of MKR, DAI, BAT, REP, TUSD, and USDC tokens.”
By focusing on liquidity, Luu explains that Kyber has been able to grow more than most other DEXs over the last year. Adding more and more Reserves further allows them to offer the best available rates for the token pair in question.
“Kyber has over 27 Reserves to date. Anyone can easily access Kyber’s documentation on our Developer Portal to integrate with us or set up a Reserve to contribute liquidity. Over time, we plan to make it even more straightforward for anyone to both access and contribute liquidity on Kyber.”
Sounds promising, but when will DEXs rule the roost?
Aggregating liquidity and offering flexibility and competitive rates may sound good on paper, but the user numbers for DEXs are still languishing in the doldrums.
For example, Ethereum’s most popular DEX – IDEX – registered just 632 users in the last 24 hours. Forget about competing with Binance, let alone with the likes of Facebook.
With that in mind then, how long does Luu think it will take for the financial system to become completely decentralised? In fact, will it ever really be? He admits:
“Although dApp growth and adoption in the crypto space is picking up speed, it is still challenging to create a totally decentralised financial system given the general lack of understanding about blockchain technology and the many regulatory differences around the world…
“We have to acknowledge that it will require a substantial period of time and effort before the existing financial system can become more decentralised.”
So no time soon then. However, he counters:
“We are witnessing very encouraging progress in the DeFi movement, with more than $460 million locked in projects such as Maker, Nuo, InstaDapp, Compound, and Fulcrum. These projects have essentially allowed users to be their own bank or fund managers, bypassing the need to trust any centralised intermediaries to transact or store their assets.
“As more people around the world become familiar with DeFi and begin investing through these platforms… we can envision the global financial system operating in a more decentralised manner in the future.”
What’s still needed for the decentralised economy to become a reality?
Depending on what part of the globe you’re from, you may be used to paying with a credit card, WeChat Pay, or even crypto.
However, with less than 1% of the world actively using crypto and much of the developing world still managing in cash, you would be forgiven for thinking that a decentralised economy is still little more than a pipe dream.
Luu concedes: “Developing a global decentralised economy is tough. There is little adoption of decentralised technologies in different parts of the world. To aid in mass adoption, a lot more education is required on a large scale. It is heartening to see top universities such as Berkeley, Cornell, and Oxford start to support blockchain and cryptocurrencies through various courses and student hackathons.
“Apart from more education targeted at students and retail investors, the benefits of decentralised technologies also need to be embraced to a certain extent by the governing bodies in different countries.”
Regulation globally, he states, continues to be fragmented and unclear. Many dApps and chains exist “in their own individual silos”. Luu believes that for greater liquidity and usability, there needs to be a way to “bridge liquidity across these platforms and allow frictionless exchange of value”.
He says: “Blockchain limitations in terms of interoperability, speed, cost, and security will also have to be addressed before the decentralised economy can become a reality.”
While there are a bunch of successful blockchain projects using the Kyber Network protocol – including MyEtherWallet, Enjin, and Nuo – most of these users are crypto-savvy to begin with.
Luu understands that to really cause a revolution and encourage mass adoption, there’s still plenty more work to be done.
“We know that there is still a huge challenge to get more lay people to trade cryptocurrencies through Kyber,” he says.
Wrapping things up
While Kyber may be smashing new records, the race to decentralised finance is still more of a marathon than a sprint. Usability, simplicity, and making the benefits of decentralisation clearer to lay people all need to be addressed. For Kyber Network, Luu says they also have their work cut out.
“Apart from more education on the benefits of using KyberSwap, we have to make our token swap and liquidity contribution process even more intuitive to people with no prior experience in crypto… Steps have to be taken to understand our users and improve… It is still challenging for Kyber to compete with centralised exchanges when it comes to volume and liquidity for most tokens in the market.”
“Composability and collaboration between projects is an important driver of growth not just for DeFi, but for the entire crypto ecosystem. Finance can only be truly ‘open’ and ‘decentralised’ when there is the ability to combine decentralised financial protocols and achieve synergy not possible with individual projects on their own. This opens up a world of possibilities.”
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.