Recently a hot topic in blockchain industry is DeFi, Decentralized Finance. For example, decentralized collateralization (Stable coins like MakerDao), lending (SALT, EtherLend), insurance etc. DeFi essentially uses blockchain, the “world computer”as a decentralized ledger, and tries to reform the existing financial service system into a decentralized, trustless, middleman-free system. In the existing financial system, all financial act ivies need to be conducted via middlemen such as bank, insurance companies, brokers etc. Those middlemen charge out-sized fees for their service. Successful roll-out of DeFi will return these fees to market participants and greatly reduce the transaction cost.
Before any break-through in scalability, the state of art blockchain technology can not be called a “world computer”. Rather, they are just “world ledger” because ledger is relatively less resource intensive. However if we want this world computer to do something more complicated, such as decentralized email, music & video streaming, and other generic computations, then it can not handle, unless theoretic break-though like RChain is implemented. That’s why after rise & decline of ICO, Ethereum is betting on DeFi for coming back.
However, if the goal of DeFi is to disrupt the existing financial system, platforms such as Ethereum, EOS still can not fulfill this purpose. One biggest reason : financial system needs a reactive smart contract system, while Ethereum, EOS etc are all active.
What is a “reactive smart contract”? A metaphor is an Excel sheet with a bunch of formulas with a few input cells. If you type something in the input cells, the formulas automatically update the result. You can compose many of these sheets into a very complicated structure. For those folks working in finance department of corporations, accounting firms such as big 4, or IBD departments of Wall Street firms, their daily jobs are to work with these kind of Excel spreadsheets. RChain’s smart contracts are essentially similar to the Excel spreadsheets: RSpace behaves like cells, Rholang contracts work like formulas. You changed input （put something in the channel）, other cells (data in the Rspace) will automatically updated according to predefined rules.
What is an“active smart contract”? A metaphor is a calculator, such as the salary/tax calculator you see on line with buttons. You input something in the input box, click button, and get your result. If you don’t click your button you’ll get nothing. Almost all existing blockchain platforms such as Ethereum, EOS, Dfinity etc belong to this camp.
Now people may ask, so what? Well, this difference is HUGE for DeFi. Finance is essentially the flow of money, and money has value of time! In real life, whenever you receive some money from others, you’ll immediately deposit or invest it, so money can be snow-balled and generate more money for you, even when you are resting. Treat cash flow as a water flow, then reactive smart contracts work like a set of pipes & channels, where water flows from a high point all the way down to destinations without too much of your interventions. While in the active smart contracts case, you’ll need to continuously spoon out water from one place, and pour into another place. It is not only not only exhausting but also slows down the water flow.
Take a detailed example : a decentralized lending->securitization->credit derivate issuance process. Assuming there is a decentralized lending platform, called “Ether LendingClub”, where borrowers money from the platform and pay back principal & interest at pay day. All these cash will be distributed to investors who allocated in the borrower. There is one big investor account “Ether JP Morgan” who is the trustee of a decentralized loan backed securitization platform. And its job is to further distribute the principal & interest it has received to grade AAA, AA to BB investors, according to predefined allocation rule, to satisfy different investors’ risk/reward appetite. Then another decentralized derivative platform called “Ether Merrill Lynch”issues an index which covers many of these similar decentralized loan backed securities, as well as a credit default swap contract which one side pays premium to get insurance payout incase the index underperforms. Well, this complicated financial system (actually it is not complicated at all because it is exactly how our existing financial system works!) is implemented by active smart contracts only, then it will be extremely difficult for DeFi participants to manage. Every moment thousands of borrowers repays, and investors need to actively call the smart contracts to get the money out and feed it to the next contract (you have to keep spooning water out from one stream and pouring into another place!). Of course, to partly remedy the problem, you can only call contracts once every day, however by doing so you’ll loose the time value of money. If contracts are all reactive, then once deployed, the cash flow in this system will flow automatically without any manual intervention.
Therefore, RChain equipped with reactive smart contract is the best option for DeFi. Particularly, at Venus milestone, after powerful behavior/spatial type system is implemented, the security of smart contracts will be greatly improved. And all kinds of DeFi dApps may flow into RChain platform. After all, the capability of “deploy once and relax” greatly simplifies the DeFi participants’ work and speeds up greatly the cash flow. It is miles better than the existing platforms.
Disclaimer : not any investment suggestion.