The Problems with DeFi and How to Solve Them

Today’s financially challenged climate – battered by the winds of high unemployment, prolonged lockdowns, strained central banking policies, the threat of hyperinflation, and artificially restrained interest rates – has shaken confidence worldwide in major banking institutions as well as state economies. As a result, individuals and institutions are looking for new and innovative ways to preserve and generate wealth. Much of this is focused on “passive income” by putting one’s assets to work in the form of staking, providing liquidity, yield farming, and other participation in what became immensely popular in the Summer of 2020 and continues to grow: Decentralized Finance, or DeFi. 

At the start of June, the total DeFi market cap was about $2 billion. Within a few weeks, this doubled to $4 billion and by August of 2020 had doubled again. At the time of this writing, the total DeFi crypto market cap is $90.17 billion. 

These platforms have their own set of advantages and challenges. For example, DeFi may provide lower costs, better security, more privacy, and greater accessibility worldwide, yet often with its own issues.

Trust Issues

Addressing the uncertainty and even distrust surrounding traditional banking institutions and state governments, DeFi platforms offer a significant reduction in intermediary involvement through the use of automated functions via smart contracts. These “trustless” systems are aligned philosophically with the original principles of decentralization put forth in Satoshi Nakamoto’s white paper for Bitcoin and especially appeal to the technologically savvy investors of today. But, do they fulfill their promises? How can current DeFi models be improved on?

Just How Decentralized?       

Lex Sokolin of ConsenSys, states there are DeFi platforms with some degree of centralization, depending on which aspect of their architecture is examined. He explains:

“You can have a decentralized network with a permissionless financial product used by anyone anywhere, but it can be built and governed by a party with centralized control.” 

A single party or entity doesn’t control a true DeFi platform, operating instead as a function of a significant, dispersed number of individuals. However, the vast majority of lending platforms for blockchain assets are not truly decentralized but centralized and carry traditional trust-based concerns. 

Some “DeFi” platforms are decentralized only to a degree. For instance, decentralization in DeFi may refer to the protocol’s governance and upgrades or other changes to those protocols. The degree of governance decentralization may vary from one platform to another. Some are primarily governed by venture capital investors, while others have more significant, more active user governance communities beginning with governance by a foundation which may be eventually decommissioned, allowing the protocol to be governed under the control of decentralized autonomous organizations. This shift affords more power to token holders while providing a mechanism to protect token holders from collusion and censorship.

Built for Speed?

Decentralized platforms are sometimes slower than centralized ones. According to an analysis, centralized cryptocurrency exchanges take an average of 10 milliseconds to execute orders, while decentralized exchanges take a minimum of 15 seconds. A decentralized exchange may take up to one minute to complete an order, much longer than its centralized counterpart. 

Problems making current DeFi systems slow or even unreliable are generally tied to low liquidity and difficulty switching between blockchains. With many diverse currencies and tokens exchanged, the number of traders available is insufficient for seamlessly moving assets. Combine this with limited means to transfer between different commodities focused on exchanges, and otherwise capable systems become congested. 

A Lack of Experience

Another specific risk with these tranche products is that they are relatively new types of structured products built by non-financial experts. Structuring products is a complex practice best finessed by experienced financial engineers at investment banks. 

Due to a lack of experience in the fledgling DeFi field, other risks come from smart contract errors and other human errors due to centralization on “DeFi” platforms not entirely decentralized. A lack of insurance on loans and potential failure of the price mechanism may present risks as well. 

The EQIFI Solution

EQIFI, the new DeFi protocol powered by EQIBank, solves these problems. EQIFI provides a complete, community-governed, single interface DeFi solution where users may manage their entire banking, trading, and lending services for fiat and cryptocurrencies. This addresses issues of efficiency, which in turn addresses issues of speed. 

EQIFI is led by a team of US, UK and European fintech experts with over 150 years combined experience, and over 50 successful blockchain and crypto projects. The EQIFI management grew and exited financial services groups exceeding $1.3bn. 

EQIFI simplifies DeFi by consolidating many products and services, all on one user-friendly platform. With EQIFI, the entire digital asset, blockchain, and cryptocurrency ecosystem of traders, investors, exchanges, and app users may borrow against multi-type assets without selling. dApps may borrow assets for use in the Ethereum ecosystem without waiting for an order to close or requiring off-chain activity. Speculators may deploy various trading techniques, including shorting, to maximize their opportunity, while miners may borrow against an extensive collateral selection.

The decentralized protocol allows pooled lending, borrowing, and investing for ETH, ERC-20 tokens including wBTC, Stablecoins, and select fiat currencies. It provides a uniform platform for DeFi products with the ability to apply for EQIBank accounts, loans, custody, debit and credit cards, OTC, and wealth management. 

EQIFI is unique. It serves as a single source for the most popular, most practical, and most profitable financial products all on one platform: Fixed Term Products, Variable Rate Products, Interest Rate Swaps (Refinancing), and a Yield Aggregator. These four products work collectively to provide a complete ecosystem of next-generation financial products, offering the ability to create and manage derivative products from a single protocol.

The Fixed Rate, Variable Rate, and Interest Rate Swap Products of EQIFI feature automatic lender protection built into the smart contract system. Each Product features industry-leading LTVs (Loan to Value), which are enhanced by holding native EQIFI Tokens. If the fair market value of the underlying collateral drops below the prescribed LTV at any Valuation Stamp, the system takes remedial action. This takes place in a phased approach, designed to ensure an automatic safeguard for the lender and to drive liquidity to the platform.

The EQIFI protocol is governed by EQIFI (EQX) token-holders. The EQIFI structure gives the community complete control over all proposals, voting, and the execution of changes via the governance functions of the EQIFI platform. The community may propose new asset classes, new interest rates, and new fees, providing an entirely new governance model for a platform offering these options. 

EQIFI sets new standards, establishing trustless transactions and driving real-world adoption.As a global financial protocol, it is built on the value proposition that all products and services should be uniformly available and delivered digitally. EQIFI includes a multi-faceted decentralized financial system native to crypto to recreate our legacy financial system. It successfully bridges the gap between fintech and DeFi, combining both in a single ecosystem powered by EQIBank, an existing licensed and regulated digital bank. Join us today as we solve the problems of DeFi together through innovation and connection.

(Diagram of Yield Aggregator Process Flow through EQIFI.)