From Chain-Centric to Asset-Centric Network Effects: How Sovryn Guides the Transition

brought to you by Sovryn

February 24, 2021

The DeFi fever unleashed in 2020 saw a market grow from a barely relevant $1.259 billion in locked value (crypto assets staked by users on DeFi platforms) to today’s $40.704 billion total value locked. Anyone who thinks that the DeFi “trend” is winding down should realize that in the last 30 days, value locked has risen by 75%.

Another thing naysayers may want to know is that DeFi has barely even begun. Because what we saw in 2020 with Uniswap, Aave, Compound and dozens of other DeFi protocols was almost exclusively built on the Ethereum Blockchain. Smart contracts, lending protocols, liquidity providers, staking systems, governance tokens - almost all of it was built on Ethereum. DeFi in 2020 was “Chain Centric”.

Is that a problem?

  • It’s a problem when unaudited smart contracts or protocol loopholes leave crypto assets exposed to hacks and rug pulls.
  • It’s also a problem when gas (transaction) fees due to network congestion are driven high enough to deter many users, particularly those who are not trading enough to make an $80 transaction fee worth it.
  • Some of crypto’s biggest supporters (Bitcoiners) have been largely left out of the 2020 DeFi phenomenon because of the lack of integration with the EVM, leaving the industry’s most important asset out of the picture, along with most of the liquidity. That is definitely a problem.

Ethereum’s scaling issues, which have led to high transaction costs and network congestion, have long been discussed, with various solutions being proposed and built out.
But with Ethereum as the central chain where DeFi is happening, scalability with better security on Ethereum still seems out of reach in 2021. There has to be another way to service the growth rate we are seeing in decentralized applications without undue exposure to hacks and without limiting participation to whales trading large amounts.

Network Effects - Definition:

Network effects are observed when a technology becomes more valuable as more people use it.

Chain-centric network effects - the origins

DeFi’s dependence on chain centricity grew partly out of the network effects created by the ICO revolution in 2017-2018. Incentivized, global, and open crowdfunding with digital assets was a big hit. Who would NOT want to own a share of a tech startup in cryptocurrency - surely the future of finance? Especially when history is being air dropped into your wallet, and when inviting your friends and followers to join means more potential profits for you.

Because of the nature of blockchains, global transactions are almost instantaneously settled and reside on a public ledger secured through advanced cryptography. But it’s been the skin in the game that users provide through staking protocols, referral programs, and marketing campaigns that gave everyone a chance to buck the fiat system and proactively enter the world of cryptocurrencies during those early ICO days.

First generation DeFi took that start and built a base of protocols that brought more democratization into crypto. Developers and teams built protocols with the plan to infuse additional layers of decentralization as soon as it was possible. Their work triggered an explosion of tokenized projects and decentralized trading and lending platforms, where the users own (and hold) their crypto stake and are offered a chance to help drive the vision of each protocol through the governance token.

Even through all this innovation, DeFi’s dependence on Ethereum has resulted in the deterrence of users who don’t want to pay expensive fees or who harbor valid fears about losing their precious digital assets.

Bitcoin gives us the chance for something better

Bitcoin doesn’t want to replace Ethereum as the center chain in the DeFi world. It only wants to advance financial freedom in a secure, open, borderless, uncensorable way to everyone on earth (and beyond). Now we have the technological tools for the DeFi world to come together - not on one blockchain, but with many blockchains, sidechains and stablecoins all tethered to the new world reserve asset: Bitcoin.

Sidechain technologies like Rootstock (RSK) provide scalable transaction solutions that are secured by Bitcoin PoW mining. RSK is a smart contract platform compatible with the Ethereum Network, which uses Solidity to write smart contracts that bridge the Ethereum ecosystem to a Bitcoin-native financial system.

Up until recently, RSK hadn’t gained traction as they were focusing on the foundational aspects of securing their Bitcoin layer-2 sidechain. But now, RSK is production ready - at the same moment when:

  • Blockchain-to-blockchain protocols like Polkadot and Cosmos are emerging
  • The value of Bitcoin is skyrocketing
  • The Ethereum Network is reaching its limits
  • Modern fiat-based economies are breaking, their weakness exposed in real time
  • Interest in cryptocurrencies and DeFi are at an all time high

In 2021, DeFi is expected to move freely across chains, centering on “Bitcoin as the global reserve asset” and not as “Bitcoin the blockchain”. DeFi will no longer be centered on or limited to the Ethereum Blockchain. It will envelope it. The center of the new DeFi universe is Bitcoin. The new asset-centric network effects based on Bitcoin will expedite the evolution of DeFi with better security, the ability to serve the masses, and with vertical integration of the world’s leading blockchains. Bitcoin is the world’s most precious asset; it gifts us with an untainted global reserve asset to replace a crumbling and corrupt fiat system.

How Sovryn unites DeFi with Bitcoin

Bitcoin layer-2 technologies like RSK enable developers and teams to build out DeFi applications and protocols without being held back by the scalability limitations of Ethereum. Sovryn is building an underlying infrastructure for Bitcoin-native DeFi protocols that uses the RSK sidechain as a bridge builder between crypto platforms, blockchains, DEXes and dApps.

  • Sovryn’s Bitcoin-native DeFi protocol features permissionless trading, staking, lending and margin trading, allowing users to participate in DeFi pseudonymously.
  • Transactions on the Sovryn platform are verified by Bitcoin PoW miners, with fees paid in Bitcoin.
  • Users can retain full ownership of their Bitcoin while putting it to use in trading, lending and earning.
  • A system of qualified staking imbues a heightened level of ‘skin in the game’. This governance model incentivizes token holders to stake for the long term while they participate in the decentralized governance mechanism, steering the direction of the protocol.

Sovryn is a DeFi financial infrastructure protocol that is set to drive the transition from chain-centric to asset-centric network effects. With a Bitcoin-native, full stack operating system, Sovryn is shaping the future of DeFi and money itself.

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