Top Projects From ETHGlobal Reveal Sustained Development in DeFi

Though the DeFi hype has cooled off, the niche continues to push Ethereum’s adoption among developers and users. And to help sustain the innovation, ecosystem players like ETHGlobal are conducting free hackathons and summits.

The project’s latest hackathon, ETHOnline, offered aspiring and seasoned developers a chance to build decentralized applications (dApps) on Ethereum. Top projects to come out of these events include Tornado Cash, 1inch.exchange, Hummingbot, and many more.

For the best performers, ETHGlobal offered a $125,000 prize fund.

As this month’s gathering comes to an end, Crypto Briefing has selected a few of the top projects that teams built during the hackathon. 

Top 4 DeFi Projects from ETHGlobal Stoploss

Decentralized exchanges (DEXes) on Ethereum have been mostly an afterthought for traders due to their low speed, poor liquidity, and expensive transactions. However, in 2020, decentralized trading has exploded in popularity, thanks to incentives for liquidity providers (LPs).

Providing liquidity has become one of the most profitable strategies during the DeFi bull-run. However, large profits came with substantial risks.

Consider exchanging ETH to USDC on Uniswap. Unlike centralized exchanges, Uniswap doesn’t have an order book; instead, it uses two pools with LP’s ETH and USDC. The exchange takes ETH, places it in the respective pool, returning USDC from another pool. LPs receive a fee on the swap because it wouldn’t be possible without them.

Such a design introduces the problem of impermanent loss (IL). To provide liquidity, a user must deposit equal amounts of ETH and USDC. Hence, each trade will change these amounts, resulting in a partial loss of one asset. 

Arbitrage traders are, however, incentivized to make up this loss and restore an equal balance of assets, hence the use of the term “impermanent.” 

Impermanent loss. Note: the percentages are for illustrative purposes only.

Unfortunately, it’s not guaranteed that DeFi arbitrageurs will arrive or that IL’s recovery will be fast, which raises concerns for LPs. A project called Stoploss attempts to solve the issue by enabling control over IL.

Stoploss acts as a proxy to Uniswap. A user will be able to provide liquidity to Uniswap through the platform, specifying a guaranteed amount they want to keep in case of IL swings.

Guaranteed amounts will be returned to users by Stoploss liquidators. If an LP’s balance gets close to the guaranteed amount, liquidators will sell their pool ownership tokens to protect funds. Anyone on the platform will be able to act as a liquidator.

A potential weakness of Stoploss is its liquidation system. It’s not automated and is dependent on Ethereum’s throughput. Wild market swings can paralyze liquidators, as it once happened to Maker, which employs a similar liquidation strategy.

Moreover, the Stoploss liquidation mechanism doesn’t protect from the so-called rug pulls. 

A large swap in a pair with low liquidity can leave LPs with potentially worthless tokens. Usually, a large-cap asset like ETH or a stablecoin like USDC ends up being paired with small-caps to facilitate price discovery. A rug pull drains these assets, as an overwhelming amount of the small-cap tokens is swapped for all the available liquidity.

At the peak of DeFi’s yield farming mania, several malicious players, like HotDog, executed rug pulls.  

The aftermath of the HotDog rug pull. Source: ChartEX

A rug pull involves a single transaction, so Stoploss liquidators can’t protect LP’s funds. The process is too fast to allow anyone to react.

Despite some limitations, Stoploss is an essential building block of decentralized trading. It provides a viable solution to a long-standing problem and encourages further exploration of making the LP experience more secure.

Overlay

Like Stoploss, Overlay focuses on DeFi trading, except it operates in a different niche – derivatives. The app trades on data streams like asset prices.

In the past years, crypto derivatives have exploded. Centralized platforms like Deribit and Phemex and decentralized ones like Synthetix saw wild spikes in trading volumes and open interest.

Synthetix trading volume. Source: CoinGecko

Overlay may benefit from both the decentralized trading and crypto derivatives trends. Moreover, a unique approach to the trading process helps distinguish the project from the competition. 

The key differentiator is that DeFi traders won’t depend on counterparties. Overlay doesn’t match any orders. Instead, it employs dynamic supply to reflect users’ performance.

Consider trading on BTC price data on Overlay. A user enters a long position by locking up Overlay’s native token, OVL. Should the market move in their favor, Overlay will mint OVL tokens and distribute them to the user when the position is closed. Otherwise, the platform will burn some OVL and deduct the user’s wallet balance.

Overlay’s approach removes the problem of insufficient liquidity. Traders will open large leveraged positions on obscure markets without affecting the prices of underlying assets. 

On the other hand, dynamic supply can introduce a specific set of issues connected to supply and demand. For instance, if most traders on the protocol traded in profit and want to liquidate OVL for stablecoins, OVL price will suffer.

Nevertheless, Overlay has significant growth potential, as it addresses popular markets and unlocks unique trading opportunities.

Unipeer

Unipeer is a decentralized automated fiat on-ramp. It’s focused on one of the world’s most rapidly expanding DeFi markets – India. 

Despite harsh regulations, India remains an incredibly vibrant crypto market. One of the primary reasons for the strong demand for crypto comes from the instability of the national currency, the Indian Rupee (INR). 

With crypto, Indians can protect their hard-earned money by converting it to stablecoins.

USD/INR. Source: TradingView

Much of India’s DeFi trading is peer-to-peer (p2p), with citizens actively using platforms like Paxful. 

Unipeer addresses this growing demand and strives to make crypto purchases easier than competing centralized platforms by automating the process.

Trading volume on Paxful in India. Source: CoinDance

To buy crypto on a p2p platform like Paxful, a user would connect with a seller, which would place some tokens in the platform’s escrow. Once the seller receives fiat, they manually release the escrowed funds. If anything goes wrong, both parties can appeal to Paxful for help.

Manual operations are inefficient and not transparent. Unipeer solves this by connecting to a Unified Payment Interface (UPI) for fiat transfers. UPI enables sending and receiving money without revealing sensitive information, much like a Venmo for DeFi.

Unipeer uses oracles to read data from UPI, which enables escrow automation. Once a seller’s UPI account receives funds, crypto is automatically released to the buyer.

Another advantage of Unipeer is that it lives on Ethereum and is fully compatible with ERC-20 tokens. Unlike Paxful, mostly focused on Bitcoin, Unipeer can offer direct stablecoin purchases, which may appeal to some customers.

While Unipeer looks like a strong contender to become a go-to solution for crypto purchases among Indians, regulatory actions may hamper the platform’s adoption. 

India’s government isn’t very friendly to crypto, and further bans may cause Unipeer and other platforms to struggle from a decline in demand. Otherwise, Unipeer is well-positioned to piggyback on the popularity of p2p crypto trading in the country.

Crescendo

The DeFi craze once again highlighted the slow speed of Ethereum. At 15 transactions per second, the network can get quickly congested, which drives up gas prices and stalls decentralized applications.

Median gas price. Source: Blockchair

Layer 2 platforms like xDai and optimizations like Optimistic Rollups aim to improve Ethereum’s scalability, but they require time for implementation and adoption. The creator of Crescendo wanted to find a more immediate solution.

Crescendo takes advantage of similarities between DeFi transactions. Many users’ operations are repetitive so that they can be batched for the sake of better efficiency.

Users will grant Crescendo permissions to spend some of their cryptos in DeFi transactions, like Uniswap trades. The app will then group approvals and request a user to pay for the master transaction for a reward.

A significant downside of Crescendo is that it combines multiple users’ requests, leading to undesirable behavior on DeFi apps. For instance, a batched transaction on Uniswap will impact the assets price more than a regular transaction because the trading amount will be higher.

Still, Crescendo presents a viable alternative for DeFi users to save on Gas. Moreover, even a small reduction in Ethereum’s load is always welcome.

The Future of DeFi

The DeFi craze was rapid, but it was caused by working and valuable products. The now widely famous projects like Synthetix and Compound weren’t built overnight. 

The developers spent time and effort to advance Ethereum’s ecosystem under the most unfavorable conditions.

While the excitement has faded a bit, the development of DeFi applications is still in full swing. New teams and projects will create yet another base for a renewed bull run, proving that functional products in high demand work the best to demonstrate a blockchain’s viability.