Radix Protocol: Foundations for the Future of DeFi
There’s no question that DeFi will change the world, but all of the major DeFi blockchains have serious drawbacks. When you’re dealing with billions of dollars of value, you need an infrastructure platform that is fit for the challenges that are yet to come.
DeFi is a huge and fast-growing space. 2020 saw a 2,000% increase in the total value of assets locked in DeFi dApps, and at the time of writing around $20 billion is staked in these protocols. The majority of initiatives are hosted on Ethereum, though there are many challenges to the throne.
None of these newer platforms offers the combination of functionality required for DeFi to become a truly successful phenomenon, supporting the transaction load of the global financial system and all its users and stakeholders. Some of them lack the ability to scale, some lack fast finality times, and some lack communication across shards (‘atomic composability’).
Let’s have a look at what makes Radix different, and frankly, special.
1. Cerberus: composability at scale
The first pillar is Radix’s consensus algorithm, named Cerberus. This approach splits the blockchain into shards, which operate as independent sub-blockchains unless they need to communicate between each other. When that happens, shards are temporarily ‘braided’ together, before separating to continue independent operation.
Cerberus allows a combination of extremely fast transactions with a high degree of throughput and communication across the entire network where necessary (full composability), without sacrificing the decentralisation that provides so many benefits to any financial system. The result is a fully decentralised blockchain network that can scale without limit, supporting potentially millions of transactions per second.
Radix is the only blockchain that convincingly solves the so-called Trilemma of Scale, Security and Decentralisation (the three heads of Cerberus) without compromising in some way. This is the technology that will provide a robust foundation for global financial services with very low transaction fees.
2. REv2: a better build environment
The second pillar is the Radix Engine v2 (REv2), the application layer of the platform. This provides smart contract-like functionality – the ability to build decentralised financial applications (dApps) – without the risks and vulnerabilities presented by Ethereum’s Turing-complete approach.
While Ethereum’s programming language, Solidity, enables developers to build applications of theoretically any complexity, it has serious drawbacks due to precisely the same power. The way the programming language is structured and operates places a huge burden on the developer to ensure that unwanted outcomes cannot occur. Failure to meet this requirement has led to attacks, hacks, exploits and mistakes in which tens or even hundreds of millions of dollars have been lost.
By taking a fundamentally different approach to building dApps, Radix solves this issue. Radix’s Components define a limited number of functions and states that are allowed, thereby avoiding the unintended consequences of having to foresee every possible mishap entailed in coding a contract that is, by nature, highly complex.
This means new and safer dApps can be created, quickly and easily. Moreover, through a partnership with Noether DLT, who are building an Ethereum-VM emulator for Radix, dApps developed on Ethereum can be migrated seamlessly to Radix.
3. Component Catalog: get up and running, fast
The approach of enabling highly functional but safe DeFi Components lends itself to the third pillar: the Component Catalog. This will be an on-chain library of Components, which can be selected and used by any developer who needs the features they provide.
This element of Radix’s ecosystem layer will make innovation blindingly fast, since it makes building dApps like pulling blocks of Lego off a shelf and snapping them together to make a complex model or machine. An analogy from the conventional development space is using the libraries that Python provides for many popular functions to code an application quickly, rather than being painstakingly forced to code everything from scratch in a language like C.
The Component Catalog will enable fast but critically secure dApp development, attracting devs from the conventional software space as well as existing DeFi and smart contract experts, leading to rapid ecosystem growth.
4. Royalties: fair payment for developers
The fourth pillar is developer royalties: incentives that will attract talented software engineers to the platform. Developers who build Components and make them available to other users by placing them in the on-ledger Library will be able to charge other users for accessing them. Components may be ‘rented’, iterated upon and modified, but the developers responsible are paid fair value for the work they put in, with more popular and useful Components gaining more users and fees.
This addresses the chicken-and-egg problem of building network effect and momentum on a DeFi platform, where developers are reluctant to commit time to building useful applications without an established market and adequate remuneration. With Radix’s royalty payments, successful developers will be able to secure ongoing revenues, and the earlier they start, the better. This also helps to avoid the common problem of establishing and maintaining a sustainable dev fund, which has hampered the growth of so many open source platforms.
Fit for the next generation of finance
Thanks to this combination of unique features, Radix is currently the only blockchain platform that has the technical design to be able to support a global ecosystem of decentralized financial services. DeFi has enormous promise, but can only make a difference if its infrastructure is fit for purpose. Without that, it can be no more than an interesting niche. With the right platform, DeFi will revolutionize the financial system and much more besides.