Qtum (QTUM), an open-source public blockchain-enabled platform that leverages the security of UTXO while enabling several virtual machines including the Ethereum Virtual Machine (EVM), notes that suddenly everyone is talking about decentralized finance or DeFi.
Indeed, the DeFi ecosystem is expanding rapidly, despite the risks involved such as the relatively high probability of losing all invested, staked, or deposited funds into these so-called decentralized and permissionless protocols.
The Qtum team writes:
“The combination of traditional finance and decentralized blockchain networks are creating a wonderful revolution. However, at this time of rapid development, the entire DeFi ecosystem still faces various constraints and challenges.”
According to Qtum’s developers, the existing blockchain or distributed ledger tech (DLT) infrastructure is unable to support complex or advanced DeFi apps. They claim that whether it’s virtual machines, (transactions per second) TPS, TX fees, or on-chain governance, there are “many limitations” due to the lack of proper infrastructure.
Qtum introduced its mainnet back in September 2017, which was right before the massive rally that briefly resulted in almost a $20,000 BTC price, while the larger cryptocurrency ecosystem reached a market cap of over $800 billion for a short period of time, before it crashed.
The Qtum team claims that their platform offered the blockchain sector’s first smart contract platform based on the same UTXO model as Bitcoin (BTC), the leading digital currency.
Qtum’s developers note that after three years of “technological iteration,” the Qtum platform has been able to develop several technical and environmental characteristics, which are “entirely suitable” for implementing DeFi solutions.
The Qtum team acknowledges that Ethereum (ETH) is by far the most popular or widely-used DeFi infrastructure, and most DeFi initiatives are being created based on the Ethereum Virtual Machine (EVM).
They added:
“By introducing the AAL (Account Abstraction Layer), Qtum achieves full compatibility with EVM on top of Bitcoin’s UTXO model and makes timely EVM upgrades. The DeFi smart contracts deployed on Ethereum can theoretically be seamlessly migrated and deployed on the Qtum Chain and run in the Qtum version of the EVM. Developers do not need to support additional development and migration “
The Qtum team notes that they’ve made many adaptations so that programs like MetaMask and Truffle can be used when writing smart contracts using the Qtum environment. The developer experience of creating solutions may be somewhat similar to working with Ethereum, so there might not be much of a learning curve.
Qtum’s developers point out that the “relatively low TPS on Ethereum and the rising fees due to network congestion have been torturing DeFi users.”
They also mention that even though EOS and other blockchain or DLT projects are able to achieve higher TPS and much lower transaction fees, the “degree of centralization” of the network goes against one of DeFi’s main value propositions: decentralization.
The Qtum team notes:
“Qtum adopts a decentralized Proof-of-Stake consensus mechanism with thousands of independent full nodes around the world. It is one of the largest distributed networks except for Bitcoin and Ethereum. While ensuring decentralization, Qtum’s current TPS is 10 times that of Bitcoin, and several times faster than Ethereum. Also, the same smart contract consumes less gas and fees on Qtum compared to Ethereum. This is more friendly to high-frequency applications such as DeFi.”
However, it’s worth noting that Qtum does not have nearly as many users and has not achieved anywhere near the level of adoption that Bitcoin or Ethereum have, which is why it cannot benefit from the enormous network effects that the BTC and ETH blockchains are taking advantage of today.
Qtum’s decentralized governance protocol (DGP) allows block participatns to modify its network’s TPS by changing the block size according to changing network conditions. On Qtum, users can “reduce or increase” the usage cost of DeFi apps by “adjusting the gas price and gas consumption.”
(Note: For more information on why Qtum might be suitable for DeFi, check here.)
In February 2020, the entire DeFi market was valued at only $1 billion. There’s currently more than $6.3 billion of value locked in the DeFi ecosystem, or at least those protocols that are being tracked by DeFi Pulse. The top five DeFi protocols include: Maker, Aave, Curve Finance, Synthetix, and Compound.