Problem Statement

interest payment on loan

Although DEFI has made a lot of progress in a short period of time, there are still areas that need innovations to bring unprecedented values in finance. It is the 1) interest rate model sector and 2) risk management. Basically there is no innovations in interest rate model, all the models we are using is basically a legacy from traditional finance. We need to innovate the model to lessen financial segregation. It is unfair to not-so-rich people. Existing risk management in DEFI has a high possibility for market crash due to not-diversified risk management. If we do not mend the risk management, Big market failure like 2008 financial crisis will doom us.

We want unprecedented innovations.

The problem with cryptocurrency DeFi is that it applies the same paradigm as real finance in the interest rate model sector. Although it has created new concepts such as yield farming and staking, it follows the existing paradigm in which the borrower pays the lender interest on the loan. So, lending in DeFi is a situation in which the loan proceeds when the collateral is larger than the loan amount, and this has the disadvantage that it is not as friendly to the borrower as in real finance. What is the true innovation of DeFi, which is borrower-friendly and not a copy of real finance?

What is the true innovation of DeFi? What makes DeFi different from real finance is that it is just a system without an intermediary, and what they both have in common is that both require the borrower to pay interest on the loan. In reality, when a borrower borrows a loan, paying interest in return has long been taken for granted, a paradigm that has long dominated finance in the financial system in which borrowers and lenders exist. This old paradigm has dominated finance for so long that people don't even have this problematic awareness of why it should be. DeFI also is accepting this old paradigm without even a problem awareness. The capital inefficiency of brokerage fee in finance, which is a problem with the centralized system of real finance, is a phenomenon that occurs because this old paradigm dominates the financial system. In other words, the true root cause of the problems of the centralized financial system in reality lies in this old paradigm, not the intermediate brokers that appear as the phenomenon of the problem. After all, the underlying and real problem is this old paradigm in which borrowers pay interest on loans.

What makes DeFi different from real finance is that it is just a system without an intermediary, and what they both have in common is that both require the borrower to pay interest on the loan. In reality, when a borrower borrows a loan, paying interest in return has long been taken for granted, a paradigm that has long dominated finance in the financial system in which borrowers and lenders exist. This old paradigm has dominated finance for so long that people don't even have this problematic awareness of why it should be. DeFI also is accepting this old paradigm without even a problem awareness. The capital inefficiency of brokerage fee in finance, which is a problem with the centralized system of real finance, is a phenomenon that occurs because this old paradigm dominates the financial system. In other words, the true root cause of the problems of the centralized financial system in reality lies in this old paradigm, not the intermediate brokers that appear as the phenomenon of the problem. After all, the underlying and real problem is this old paradigm in which borrowers pay interest on loans.

No Innovations in Interest rate model

Several of DeFi's projects have brought innovations in their respective fields. Looking at it, MakerDAO, which issued the first stablecoin to solve the biggest weakness of cryptocurrencies, large volatility, and COMP, a governance token, which led to innovation in governance by allowing even minute details of the protocol to be adjusted by voting, and p2p lending There is AAVE, which has evolved one step from the system to a loan system with a liquidity pool concept. And, there is DEX's uniswap, which solved the lack of credibility of centralized exchanges due to hacking and quenched the trading thirst of altcoins who are experiencing a trading drought because they were not listed on centralized exchanges. In addition, dydx, which enables cryptocurrency derivatives trading without government interference, and Synthetic, which allows anyone to easily issue and exchange cryptographic synthetic assets, have been leading innovation for two to three years in cryptocurrency DeFi. As seen above, The innovations so far are lied in credit/lending, decentralized exchange, derivatives. But not in fee structure. We think there is a room for innovative fee paradigm.

Market Crash like 2008 Financial Crisis

The financial crisis of 2008, which was the trigger for the birth of Bitcoin, occurred when financial companies around the world started liquidation procedures at the same time because financial companies around the world managed their risks in the same way called notional limit. The problem with crypto markets is that risk management of all crypto market exchanges and DeFi protocols is being done in the same way as in the 2008 financial crisis, in a simple way of paying off loans based on price alone. This is a method that has a very high possibility of causing a market crash in an instant like the 2008 financial crisis. If a market crash occurs in a crypto market that is not more mature than real finance, the damage will be beyond imagination to the extent that the crypto market itself can collapse. So, it is imperative to innovate the risk management that exchanges and DeFi protocols are operating in the crypto market right now.