We’ve all heard of CeFi – Centralised Finance – and DeFi – Decentralised Finance. But what about DiFi – Distributed Finance? In general, there are three types of networks:
We wrote extensively about CeFi and DeFi in another blog post, but this time all the fuzz is about this new category of finance: DiFi! In a nutshell, DiFi is all about letting users control their funds by controlling their keys, but with a twist. The funds they control are IOUs – tokens that represent the underlying asset 1:1 – with the underlying asset safely distributed across one or multiple custodial wallets. This comes with multiple benefits:
👉 Users can benefit from the convenience of others holding and securing their assets
👉 Users can hold their private keys
👉 Users can confirm transactions on a blockchain
👉 Users can exchange assets with typically higher liquidity
👉 Users can trust that other users are verified and hence legit
Similar to CeFi, when users sign up on a DiFi platform they need to verify themselves as DiFi solutions store user’s assets on custodial wallets that need to comply to various KYC and AML regulations:
Similar to DeFi, users hold their own private keys and unique passphrase to unlock their account and access funds, stored on their trusted custodial wallets.
The reason users need to access funds using a passphrase is because all transactions are logged on a blockchain, but contrary to DeFi, the same blockchain is used to log all transactions in DiFi, regardless of the cryptocurrency. This lowers cost and time to transfer and trade cryptocurrency as there is no need for atomic swaps or other on-chain transactions. On Blockbasis, the blockchain used to process all transaction is the Graphene blockchain, which powers other services like Steemit, Bitshares and FollowMyVote.com, known for it’s fast and secure protocol capable of processing over 100,000 transactions per second with an average confirmation time of less than 1 second.
Decentralized exchange (DEX)
Similar to DeFi, transactions between users happen peer-to-peer in a decentralised way, logging all transfers and trades on a distributed ledger, which is easy to verify on the blockchain and impossible to tamper with. On Blockbasis, all transactions are processed on Bitshares and hence the Graphene blockchain:
Contrary to DeFi platforms, a DiFi platform typically has more liquidity due to it’s ability to separate core assets and IOUs. An IOU is a token, issued on the blockchain that the DiFi platform operates on, which represents the same value as the underlying asset. For example, 1 BLOCKBASIS.BTC is equal to 1 BTC. The BLOCKBASIS.BTC tokens run on Bitshares, while the 1 BTC is powered by the Bitcoin blockchain. When multiple cryptocurrencies come together on a DiFi platform, the total liquidity on the DEX increases, making it easy, fast and cheap to transfer and trade all kinds of cryptocurrencies on the same network.
Similar to DeFi, by holding your own private keys and having all transactions logged on a distributed ledger, the need for trust is almost removed on DiFi platforms for any given user as they can easily move on to another service with their funds using their private keys.
Contrary to DeFi, on a DiFi platform the underlying asset will be stored on a custodial wallet, which the user will have to trust.
CeFi and DeFi is getting all the attention right now, but time will tell if DiFi solutions like Blockbasis will start to gain traction as more and more users see a need to hold their own private keys, yet still want the convenience of being able to access funds online.