DeFi, short for Decentralized Finance, is one of the most popular blockchain concepts. At 01, we think that as an integral part of financial systems, the bottom line for any DeFi product is to achieve the same level of security, stability, and trust-effectiveness as classic financial services; on top of that, building an autonomous, trustless, and inclusive system is always the stretch goal. On the other hand, DeFi products at its status quo still suffer from issues ranging from attacks both at protocol and infrastructure level to limited options on collateral assets, below-average user experience, and underperforming infrastructure. Therefore, DeFi is still largely embraced by exclusive circles of asset owners.
Taking the Black Swan incident on 2020.03.12 as an example when bad things came in threes. Almost all cryptocurrencies experienced plunges in a short period of time, which led to a significant number of liquidated assets on DeFi lending platforms, such a MakerDao or Compound. One triggers the other, the Ethereum network was congested with pending transactions. Borrowers could not repay the outstanding borrowing in time, resulting in collateral loss; liquidators could not obtain assets in time for auctions through transfers. As a result, huge numbers of unwanted assets were taken away by liquidators and liquidation robots at extremely low prices, as low as 0 DAI (~ $0). Instead of repaying the borrower’s collateral value and rebalancing the protocol, borrowers and lending platforms had to endure the massive loss.
After witnessing the losses of the borrowers and the platform, we are determined to develop a new lending platform with more generalized asset templates and better collateralization models that could withstand future market meltdowns. The initial proposal has gained further support from the technical community of Conflux Network: with ETH 2.0 still in embryo, Conflux Network runs as if the V8 engines of Flux, drastically improving the efficiency of the interest rate model, liquidation logic, and more features of current DeFi lending products. With the improvements just mentioned, we reveal the Flux Protocol.