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How Radix Is Bringing Interoperability to DeFi

by Stephen Young

18 January 2021 13:49pm

A new era of financial innovation and inclusion is upon us. While the value of bitcoin soars and institutional capital floods into the market, numerous projects have emerged offering alternatives to the walled gardens of traditional banking. These open finance protocols – variously concerned with borrowing, lending, saving, staking and trading – witnessed stupendous growth in 2020, finishing the year with over $15 billion locked into their smart contracts.

While the first phase of DeFi was a resounding success, the potential for further growth is enormous. After all, if DeFi can make good on its promises, it could deliver accessible financial services to users all over the world, transforming itself from a niche technological tool into a genuinely global industry. The number of unbanked adults currently stands at 1.7 billion. As well as having a simpler onboarding process, DeFi, as it stands, gives users far higher yields than they can expect from regular bank accounts. This will essentially unlock billions of dollars of idle capital in low-interest bank accounts and provide full ownership over the custody and utilization of funds.

What DeFi Needs in Phase Two

In order to achieve its lofty goals, DeFi must break beyond the boundaries of the hyper-connected, tech-savvy crypto world and position itself as a viable alternative to people who’ve never interacted with digital assets. It must also be able to scale, in order to process higher transaction numbers while keeping fees low. Interoperability is the final piece of the puzzle: DeFi protocols should be capable of facilitating a seamless flow of value across disparate blockchains, and scripting language limitations must be addressed so that developers can create usable products, free of technical barriers.

Only by making strides in these areas can DeFi can maximize its appeal and become a solution to the inefficiencies and injustices of the legacy financial system. Of course, DeFi products must also improve. At the moment, speculation is the primary use-case as decentralized exchanges (DEXes) and swap interfaces capture the bulk of volume in what remains an exploratory, experimental phase. However, more yield-generating projects are coming on line, projects that help users earn a healthy return by locking up their assets. In the future, we could see insurance, crowdfunding, real estate and other verticals come to DeFi.

Radix is one blockchain seeking to bring interoperability to this fast-moving space, via a comprehensive technology stack that ensures scalability, security, decentralization and composability. A high-throughput layer one infrastructure, Radix holds the world record for transaction speed, with the capability of processing 1.4 million per second, without the need for masternodes. To offer context, Visa handles around 1,700 transactions per second for a daily total of 150 million.

With its own version of Ethereum’s Virtual Machine (the Radix Engine, RE), the platform represents a dynamic paradigm shift in dApp development. Within the Radix ecosystem, RE smart contracts are referred to as Components, and are built in a way that closely models real-world expectations for finance. Or to quote the Radix DeFi whitepaper, “Components can behave more intuitively like physical assets or other finance building-block primitives, rather than as black boxes, making their behavior via Actions easier to reason about, design, and analyze.”

Community Collaboration in an Open Environment

In the interests of promoting interoperability, Radix places community collaboration and manager-like functionality directly on-ledger, a universal registry that can be updated, extended and leveraged by developers from all backgrounds. Instantiation is simple, facilitated via API, and most Components within the catalog include configuration parameters enabling customization. With this system, Radix makes it possible for developers to build interoperable DeFi dApps faster than ever before.

The project has attracted considerable investment ahead of its mainnet release this year, with $4.1m raised last summer taking its overall total past $10 million. According to one backer, LocalGlobe’s Sam Klein, Radix has the “same revolutionary potential” he recognized in Skype and Netscape in the early days of the internet. Recently, Radix has announced it will be listed on Bitfinex, a global top 5 exchange, on January 21st. This marks a major step forward in Radix’s global expansion.

With the growing popularity of wrapped assets, which allow users to interact with DeFi using non-ERC20 tokens like bitcoin, not to mention the development of bridges via parallel chains, interoperable infrastructure is getting better every day. In Radix, the industry now has a protocol built specifically for DeFi, one that will integrate with payment rails and consumer applications to make the onboarding process as simple as possible. Indeed, the platform is already integrating with leading oracle network Chainlink to supply devs with accurate off-ledger data.

DeFi’s second phase can’t enjoy the same rate of growth as it experienced in 2020… can it? One thing’s for sure, interoperability will remain a key battleground as the sector ramps up efforts to onboard the next wave of everyday users.