Ever since Satoshi bestowed us with blockchain, the underlying tech of Bitcoin, all of its applications have been directed to revolutionizing the fintech industry. After prolonged tests and trials of integrating this tech in the financial sector, one particular feature of blockchain technology that caught the attention of fintech aficionados is decentralization. Transparency being an obstinate cause of most flaws in the financial sector, decentralization aspects of the blockchain have proven to be the remedy, and that's when Decentralised Finance came into existence.
DeFi is currently one of the hottest topics in the crypto space. This is not a surprise considering how these platforms have revolutionized the finance sector by providing financial services without needing a trusted intermediary. These services include decentralized borrowing/lending, decentralized exchange, stablecoins, derivatives, exotic assets, and prediction markets. But while DeFi has brought real innovation and revolution in the traditional financial sector, it's not as decentralized as such.
In fact, DeFi provides the cryptocurrency ecosystem's financial services using two main approaches: centralized and decentralized. Several DeFi protocols such as SALT, BlockFi, and Nexo, etc. are custodial and use centralized price feeds, initiate a margin call centrally, centrally determine interest rates, and centrally provide liquidity for their margin calls.
Others, such as Dharma, are non-custodial but use centralized price feeds, centrally initiate margin calls, centrally provide liquidity, centrally determine interest rates, and centrally administer platform development & updates.
Centralization of several DeFi protocols goes against the actual essence, thus pose a potential security risk, which hinders its widespread adoption. Nonetheless, the newly launched Nonetheless, FUSION protocol achieves full decentralization in DeFi protocols and spurs interoperability between different DeFi platforms for seamless financial transactions. Read on to find out how FUSION brings decentralization into the DeFi sectors.
FUSION Project Overview
FUSION is an interoperability project that seeks to solve several challenges in the blockchain space, in turn placing the blockchain technology at the center of global finance. The project offers "true" interoperability by leveraging its DCRM technology to link cross-chain platforms (Bitcoin, Ethereum, Litecoin, etc.), cross-organizations (banks, insurance, exchange), and cross-data sources (index, stock prices, etc.) allowing them to communicate and exchange data as well as value.
FUSION decentrally links different types of blockchains networks by using distributed network nodes to control various types of tokens' private keys and consequently create a control and management unit. FUSION project is powered by a Fusion coin, which employs a hybrid consensus model, i.e., POS/POA.
Dejun (DJ) Qian is the founder and current CEO of the FUSION project. DJ is one of the pioneers in blockchain research and also the founder of BitSE, which owns Qtum and VeChain.
Shortcomings of DeFi Ecosystems
DeFi ecosystems are faced with major obstacles that have hindered broad adoption. Some of the major obstacles in DeFi platforms that can be solved by the FUSION project include:
- Interoperability- This is the major challenge facing DeFi platforms. Despite some advances in addressing these challenges, DeFi has difficulty communicating values in different blockchains and off-chain and off-chain data. Cross-chain, cross-organization, and cross-datasource communications are extremely difficult.
- Centralization- Thanks to limited interoperability, the decentralization of DeFi platforms is greatly affected. Some DeFi platforms like the ones mentioned above are centrally administered. Most DeFi platforms feature several central components that pose a security risk to users.
- Programmability- DeFi featuring smart contracts are severely limited since the smart contracts are not automated, are unintelligent, and are usually dysfunctional. Current smart contracts cannot be executed automatically and must be initiated by an external transaction.
Fusion Exerting Decentralization in the DeFi Sector with DCRM
The Fusion project tackles the centralization in DeFi platforms through asset mapping and distributed control rights management, which is achieved via the Distributed control rights management (DCRM).
DCRM is an innovative technology that hands over the control of digital assets by individuals or centralized DeFi ecosystems to the decentralized nodes' management. The distributed generation and distributed storage of a private key ensure that no single individual or entity can access the complete private key. This means that there will be no centralization since no single node can obtain the digital asset's control under the state of distributed control rights management.
To achieve decentralization, distributed control rights management technology leverages two methods.
- Key Sharding- Key Sharding is the process of dividing a complete key into several parts, i.e., shard of the key. The sharded key prevents the private key from appearing as a complete private key since the key does not need to be reorganized, beginning from generation to storage. In turn, this eliminates centralization in DeFi ecosystems since the system does not keep the private key in its complete form.
- Distributed Storage- Following the key Sharding process, the key shards are stored by different nodes in the decentralized DeFi system. In the distributed storage format, each node only touches one or more fragments in the key. In addition to completely preventing malicious occupation of the private key by any third party, distributed storage also minimizes the risk of leakage of a key due to node attack or a malicious node.
Implementation of Distributed Control Rights Management
FUSION implements distributed control rights management using two basic steps: Lock-in and Lock-out. These steps safely and securely transfer digital assets' original control rights to a decentralized system and ensure the reliable and decentralized storage and use of the private key.
Cryptoasset Lock-in
Cryptoasset Lock-in process enables distributed control rights management and asset mapping for all key-managed tokens. To implement the process of Lock-In, the DCRM must first accomplish asset mapping by atomic transactions. In the implementation of Lock-in, the targeted digital asset is transferred to an address generated from a private key created by the distributed sharding algorithm to hand the control rights from a centralized management system to decentralized management.
Cryptoasset Lock-out
Cryptoasset Lock-out is the opposite of the Lock-In process. The Lock-Out process consists of two parts: to distribute control rights management and to disassemble asset mapping. In Lock-Out, the digital asset's control is conferred back to the owner restoring the complete keys' storage.
In essence, FUSION's DCRM technology enhances decentralization in DeFi platforms and also increases the value of digital assets by increasing the security, liquidity, and crypto-financial applications of existing digital assets.
Importance of a Connected Ecosystem for Financial Transactions
The importance of a connected blockchain network for financial transactions cannot be overemphasized. Since its launch, blockchain interoperability has been a significant bottleneck towards mainstream blockchain adoption. A connected blockchain ecosystem allows for the seamless sharing of information across different blockchain networks without any restrictions or the need for an intermediary. A connected ecosystem will eliminate centralization and enhance the security of financial transactions. In the long run, blockchain interoperability will encourage mass adoption and make the blockchain space evolve further.
Author's Thoughts
While most DeFi platforms claim to be fully decentralized, not all keep to the decentralization promise. Centralization of some key functionalities in DeFi platforms, including price feeds, liquidity, interest rates, etc. puts users' funds at risk. Also, there is a high chance of private key leakages. FUSION is a revolutionary protocol that can be employed to enhance decentralization in DeFi platforms and also offer interoperability for better decentralized financial services. DeFi platforms ought to be fully decentralized to guarantee users of the security of their funds. Afterall, decentralization is the central premise behind blockchain technology.
