Since it first launched in 2019, the decentralized finance (DeFi) sector has grown at a breakneck pace. According to DeFillama, the total value locked (TVL) in DeFi applications and protocols jumped from $1 billion in 2019 to more than $250 billion by the end of 2021.
The emergence of DeFi marked a pivotal moment in the history of finance. Combining the power of blockchain technology, cryptocurrencies, and financial services, DeFi has unlocked financial primitives for the global population without any centralized authorities or intermediaries.
So far, the DeFi ecosystem has delivered on its promise of facilitating financial inclusivity without any centralized control or intermediaries by leveraging smart contracts – the lifeline of the DeFi sector. What makes smart contracts a crucial part of DeFi is that they are built to execute the desired action based on predefined IFTT (if this, then that) rules automatically, thereby eliminating the need for human interaction.
Decentralized exchanges, borrowing and lending, savings accounts, staking, yield farming, and several other financial primitives have already been unlocked using smart contracts. Yet even after so much money flowing into the DeFi ecosystem, the majority of the DeFi projects constantly suffer from low liquidity.
This lack of liquidity is one of the key reasons behind the volatile nature of the crypto market. Liquidity comes from users, and there are far too few DeFi users when compared side-by-side with traditional finance (TradFi) ecosystems. On top of that, most DeFi decentralized applications (dApps) and protocols operate within closed walls, further adding to the problem of fragmented liquidity.
Fortunately, a solution has been developed to build a decentralized bridge between on-chain applications and off-chain data resources. Muti-chain layer-2 solution, Boba Network, recently deployed its hybrid compute Turing solution on the mainnet, allowing decentralized applications and protocols to interact seamlessly with all non-decentralized systems in the Web2 ecosystem.
Experts claim that DeFi’s liquidity problem can be solved by enabling the growing sector to tap into the multi-trillion-dollar TradFi economy. Once DeFi dApps and protocols are connected with real-world liquidity via novel solutions like hybrid compute, they can seamlessly integrate deep liquidity with decentralized financial services and convey the benefits of decentralization to an even larger audience.
Hybrid Compute Smart Contracts To Solve DeFi’s Problems
A bridge between the DeFi and TradFi ecosystems can ultimately benefit all related parties. In order to adapt to the changing needs of consumers (digitization in this case), banks and other financial services providers will have to embrace evolving technology. The rise of the metaverse and Web3 will further strengthen the demand for more innovative financial services. Existing TradFi models can benefit from blockchain features that make DeFi so popular among an increasing number of people.
At the same time, the DeFi sector can benefit from the unlimited data available in the real world. This data can be utilized by DeFi projects to optimize their products and services while at the same time lowering entry barriers for institutions and deep-pocketed players from the TradFi sector. Compared to DeFi, the TradFi ecosystem has no shortage of liquidity. An on-chain to off-chain connection can help unlock several new opportunities for both DeFi and TradFi.
Ideally, smart contracts are designed to perform a wide range of actions across the blockchain ecosystem. Some can even conduct basic calculations independently, but they often lack advanced capabilities. For instance, smart contracts aren’t designed to access off-chain data on their own.
While this sounds good theoretically, until hybrid compute, there hasn’t been any practical solution to enable blockchain-based projects to tap into real-world data sources and platforms in the Web2 ecosystem. Existing solutions such as “oracles” help on-chain applications access off-chain data, but “oracles” are highly centralized by design, leading back to similar problems that DeFi aims to address.
Boba’s hybrid compute protocol and smart contracts address this dilemma, enabling dApp developers to connect to existing Web2 systems (such as AWS Lambda) more quickly, easily, and cost-efficiently than ever before. With Boba Network’s Turing system, it becomes possible for DeFi dApps and protocols to interact with the outside world using Solidity smart contracts.
The data that is accumulated from external APIs, be it financial data, real-estate data, real-time weather data, or anything else, is deposited into a public data storage contract deployed on the Ethereum mainnet. Meanwhile, the more complex computations are managed remotely, and Boba’s hybrid compute protocol communicates the results to its smart contracts. As a result, developers can build more comprehensive real-world data-powered DeFi solutions, dApps, and protocols on Layer 1s without congesting the network or paying inflated gas fees.
Hybrid compute opens a world of new possibilities for DeFi (and every other blockchain-powered product and service). For example, a DeFi lending and borrowing protocol can harness the solution to access the off-chain data of its users (such as credit records). It can then utilize this data to offer customized rates and offers to borrowers, which in turn will help attract more users and ensure security for lenders.
Likewise, a DeFi dApp can integrate real-world assets with its offering, enabling tokenization and other similar models. Not only will this help boost liquidity in the DeFi sector, but it will also enable interested users of the TradFi ecosystem to enter the DeFi market.
This is just the tip of the iceberg of the many use cases that Boba Network’s hybrid compute technology and its range of Solidity smart contracts can address. Developers have just begun scratching the surface of what’s possible. As the Boba team continues expanding the capabilities of its smart contracts, only time will tell how developers are leveraging them to unlock new DeFi primitives by leveraging off-chain resources.
The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
