DeFi on Arweave: The Ultimate Platform for Decentralised Finance’s Future?

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Editor: AZ @ Contributor of PermaDAO

Reviewer: Xiaosong HU@ Contributor of PermaDAO

DeFi on Arweave: The Ultimate Platform for Decentralised Finance’s Future?

In the modern era, the extent of banks' power has become evident. From monitoring our daily transactions to peeking into our social media activities, their omnipresence is hard to ignore. But with the rise of decentralized finance (DeFi), there's an emerging solution that promises greater freedom and equity. Enter Arweave, the platform poised to revolutionize the DeFi landscape.

TelePORT would connect the Arweave ecosystem to the mature DeFi infrastructure of other EVM-chains bringing much-needed liquidity and allowing thousands of users to discover data-rich assets. - Jakub, Founder, Warp Contracts

Banks Watching Closer than Ever

Recent reports have revealed that many of the UK's largest banks, including high-street giants, have stealthily included the right to monitor customers’ social media in their privacy policies. Take the case of Nigel Farage, the former Ukip leader. His bank, Coutts, closed his account, asserting that his views "do not align with our values."

Such power by financial institutions poses alarming questions about personal freedom and the silencing of dissenting voices. After all, if Elon Musk likens platforms like Twitter to global town squares, shouldn’t everyone have an equal voice?

The Case for Decentralised Finance

With banks wielding such disproportionate control, there's a pressing need for a decentralized alternative. While the traditional finance (TradFi) world remains stagnant, DeFi offers a beacon of hope.

Although the total value locked in DeFi has seen highs and lows, its promise remains intact.

People are starting to see DeFi's appeal, given its strong privacy case. Currently, the DeFi space has a TVL of $42.9b. But that is nowhere close to its highs of around $177b back in November 2021.

Source: DefiLlama

Merav Ozair, PhD writes on Nasdaq: "Exciting times are ahead: In the foreseeable future, financial and economic services will run on Distributed Ledger Technology (DLT) – a decentralized database managed by multiple participants, with no central administrator. The year 2023 will mark the acceleration of this transformation.”

However, it's crucial to acknowledge the existing pitfalls. Even established DeFi platforms like Uniswap can be susceptible to external pressures, as seen when they restricted access to tokenized stocks. Such episodes indicate that while DeFi protocols may seem immutable, they are still vulnerable to external interference.

The Uniswap Case

“Leading DeFi protocol Uniswap has announced a decision to restrict access to some tokens, including Tether Gold and tokenized stocks, offered on its app in the wake of increasing regulatory scrutiny on similar products by its competitors. The company made this announcement via a blog post on Friday, July 23, adding that this affects a small segment of the overall volume of activity on the platform.” - Uniswap Latest to Delist Tokenized Stocks From Platform Over Regulatory Concerns (FX Leaders)

This is where Arweave steps in, providing a permanent, uncensorable platform for any data. It's a sanctuary for DeFi frontends, ensuring they remain accessible and unaffected by external changes for centuries.

On July 23, 2021, Uniswap Labs restricted access to approximately 129 tokens via its official user interface (UI) in a bid to possibly comply with evolving regulatory norms. This action came exactly a year after the onset of the famed DeFi summer. The tokens removed were primarily tokenized stocks and derivatives from platforms like Synthetix.

Uniswap operates on a decentralized protocol that is defined by immutable smart contracts on the Ethereum blockchain. This setup makes the Uniswap protocol censorship-resistant, secure, and self-custodial, allowing for peer-to-peer exchanges without the need for trusted intermediaries. However, the UI, a more centralized aspect of Uniswap, showcased the vulnerability to regulatory demands by introducing token censorship Albeit the underlying protocol remained unaffected and continued to provide unrestricted access to all tokens.

Arweave allows for the permanent deployment of webpages on a decentralized network, thereby ensuring that these pages remain accessible and uncensored. The UI of Uniswap, prior to the censorship patch, alongside those of other DeFi platforms like SushiSwap, PancakeSwap, and Synthetix, are available on the Arweave Permaweb. This helps to mitigate the risks posed by regulatory actions on centralized UIs and keeps these protocols usable and uncensored.


The Power of Atomic Assets on Arweave

Arweave stands out because of its atomic assets. In this unique system, asset data is inseparably combined with a smart contract in a single transaction. This ensures that NFTs and other assets remain 100% on-chain, with no external components that could be vulnerable to disappearance or inaccessibility.

Moreover, these atomic assets are highly customizable, allowing for functionalities such as fractional ownership directly within the smart contract. The potential here is vast, as it opens the doors for tokenizing vast datasets like movies, apps, or entire video games.

The DeFi Infrastructure Opportunity on Arweave

Despite its strengths, Arweave's potential in the DeFi space remains largely untapped. It's time to harness its capabilities for a more decentralized and resilient financial future.

Warp Contracts recently proposed a solution named telePORT. It's envisioned as a non-custodial and trustless cross-chain asset transfer protocol, aiming to tap into the massive pool of tokenized assets on Arweave.

One of the significant challenges facing DeFi is liquidity risk. The inherently illiquid nature of the crypto market means that even minor buying or selling actions can trigger substantial fluctuations in asset values. When investors fail to account for this risk, they stand to incur significant losses. Even seasoned players like billionaire Mark Cuban have fallen prey to such risks.

However, Warp Contracts' telePORT is a suggested solution that promises to address liquidity risks. Rather than being a standard bridge, telePORT functions as a cross-chain transfer protocol. What sets it apart is its ability to utilize existing liquidity on chains like Polygon, Arbitrum, and Ethereum.

And unlike traditional bridges that lock assets on one side, telePORT offers a streamlined transfer mechanism, with assets held in a self-custodial contract owned by the user. This approach drastically reduces vulnerabilities associated with bridge hacks.

Jakub, the founder of Warp Contracts, elaborates on telePORT's unique proposition: it allows for the trading of digital assets minted on the Arweave blockchain without them ever departing from the Permaweb. This essentially means that telePORT taps into the established decentralized trading infrastructure, lending markets, and more, providing a more stable trading environment for Arweave's assets.

telePORT is not a traditional bridge, but a cross-chain transfer protocol, enabling Arweave native assets to trade via settlement on EVM-based chains. In essence, telePORT leverages existing liquidity, decentralised trading infrastructure, lending markets etc. on chains such as Polygon, Arbitrum, and Ethereum. This allows the trading of unique digital assets minted on the Arweave blockchain, without them ever leaving the Permaweb. - telePORT - A Digital Asset Exchange and Bridge for Arweave to EVM and Other Chains (Permaweb News)

But it's essential to tread with caution. The DeFi world has seen bridge hacks costing billions, from the likes of Ronin to Binance. Thus, while telePORT's potential is undeniable, it's imperative to ensure robust security measures are in place.

To Sum it Up

The shift towards a more decentralized financial world is inevitable. As banks overstep their bounds and infringe on personal freedoms, web3 and blockchain offer a much-needed alternative - and Arweave can go one step further than most blockchains.

By leveraging its unique atomic assets and potential solutions like telePORT, Arweave could very well become the ultimate platform for the future of DeFi. It's a call to innovators and visionaries everywhere: Let's build a more equitable and free financial system for all.

Repeat after me: “Arweave is not just a storage layer.”

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