By: Geeq on Jun 30, 2020
DeFi continues to be a red hot topic in Geeq’s rapidly growing community, so we were inspired to follow up with another installment of our explainers.
We’d also like to extend a hearty welcome to our new and enthusiastic members! ?
Last week, we wrote Part 1 of Geeq’s Value Proposition for DeFi – in particular, how the features of Geeq’s ecosystem provide a scalable, flexible, and secure ecosystem for a rapidly growing field like decentralized finance.
Today, we focus on how using Proof of Honesty throughout the Geeq platform removes uncertainty about accounting methods which will simplify and strengthen confidence in DeFi.
DeFi is gaining popularity for the same reasons all financial markets and instruments attract attention – people are endlessly inventive in figuring out ways to make money. DeFi seems particularly exciting to the crypto community as an investor class who are accustomed to making their own decisions about risk and reward. However, as you all know, you must do your own research – this is not investment advice.
Let’s imagine a simple DeFi app as an agreement for one person to lend crypto to another, in exchange for some return in the future. Economists would call that a contract for both parties to smooth consumption over time. A borrower wants to spend funds today by giving up money in the future, and a lender is willing to give up use of funds today in order to have more funds to spend in the future. Both parties are choosing when to consume more and less.
As builders ourselves, Geeq sees tremendous opportunity in creating new DeFi applications on blockchain. Trade is good! Mechanically, however, there are two fundamental tools needed to execute such an application.
First, there must be an assurance that the accounting is correct at every moment. Second, there must be a secure way to transfer funds back and forth. Geeq provides both.
Lessons Learned from Traditional Finance
As DeFi grows, we think it is increasingly important to be wary of creating new kinds of systemic risks. After all, if DeFi fails, government bailouts are unlikely.
Systemic risk refers to the risk of a breakdown of an entire system rather than simply the failure of individual parts. In a financial context, it denotes the risk of a cascading failure in the financial sector, caused by linkages within the financial system, resulting in a severe economic downturn.CFA Institute
Systemic risk can arise when the building blocks and how they interlock are faulty. Engineers also worry about risks when systems become too complex. Finally, all financial markets require consumer confidence.
Early Warning Signs for DeFi
A common building block in DeFi is to try to establish a bridge between blockchains, or some kind of “channel”. Generally speaking, the problems that have to be solved are to provide proof of availability of funds or collateral, and mechanisms for transfers in ways that satisfy everyone involved. Unfortunately, piecing together existing parts so they work together has been a very difficult problem.
As an example, a “flood and loot” attack was described on the Lightning network last week, in which the researchers warned, “the attack can allow funds to be stolen from innocent users”. Flood and loot seems to be a new attack on a time-locked contract (for a channel) in the Lightning Layer 2 solution. It appears a malicious actor can open both sides of a channel, steal any funds sent to the channel and then ignore any further requests to operate honestly.
Put plainly, interoperability is only as strong as its weakest link. Many approaches DeFi uses today may introduce sources of systemic risk.
Geeq is a Decentralized “Network of Networks” with a Unified Accounting System
Building DeFi on Geeq blockchains takes advantage of Geeq’s use of Proof of Honesty (PoH) across all of its multiple blockchains, which:
- simplifies blockchain accounting and provides honest ledgers,
- incentivizes timely and correct transfers, and
- protects users against fraud.
Geeq simplifies blockchain accounting and provides honest ledgers. All of Geeq’s blockchains, including blockchain applications built for DeFi, use PoH to validate all the application blockchain(s) and the blockchains of $GEEQ tokens used to power the platform.
For those who would like to read how PoH, a no-consensus consensus, makes it possible to coordinate securely on a decentralized, correct ledger (more formally, a globally honest and provably canonical ledger), here is a simple Explainer. For the formal details, please see the Technical Paper.
Geeq incentivizes timely and correct transfers. Honest participants throughout Geeq’s permissionless validator networks are paid (with a profit) to follow the code exactly. Geeq’s automatic payment mechanism (in $GEEQs) and provable honesty means good behavior is incentivized at every stage of the DeFi process. Users need not have any uncertainty about whether their transactions will be picked up, censored or delayed in any way, as long as their transaction is valid.
Geeq protects users from fraud. Geeq is user-centric. As long as users use Geeq’s Edge Security, honest tokens cannot be stolen from them. While we think this is always important, we think it will be particularly useful in boosting and maintaining confidence in DeFi at Geeq.
While it remains to be seen what DeFi applications will be built, we hope you will agree that honest users on all sides will see the merit in coordinating DeFi on Geeq, an ecosystem of secure, interoperable blockchains, powered by the $GEEQ ecosystem token.
Would you like a brief explainer about Geeq’s interoperability? Please read on – and enjoy!