In the current context of rapid development of cryptocurrency and decentralized finance (DeFi), the basis for the operation of DeFi projects cannot be separated from blockchain technology. In this paper, we will discuss in detail on which blockchains the DeFi project mainly runs on, and analyze the relationship between DeFi and blockchain. As one of the core applications of blockchain, the operation of DeFi relies on the technical characteristics and functional support of different blockchain platforms. From Ether to Binance Smart Chain and other blockchain platforms, DeFi is undergoing the diversification and decentralization expansion.
How does the DeFi program run on the blockchain?
Decentralized Finance (DeFi) is financial applications based on blockchain technology that do not rely on traditional financial institutions or third-party intermediaries to enable peer-to-peer financial transactions. Based on blockchain, DeFi projects provide services such as lending, trading, insurance, stable money, etc. DeFi projects typically run on a specific blockchain and utilize the smart contracting capabilities of that blockchain to execute code and enable trustless transaction processing.
Initially, many DeFi projects focused on the Ethernet blockchain because of Ethernet's powerful smart contract capabilities and large developer community. As demand increased, other blockchains began to support DeFi applications, and the choice of these blockchains typically relied on factors such as transaction speed, fees, scalability, and developer community. As a result, which blockchains a DeFi project runs on is really dependent on the technical characteristics of those blockchains and the needs of the DeFi project.
Ether: The Birthplace of DeFi
Ether is undoubtedly the earliest and most mature blockchain platform in the DeFi space. As the world's most influential blockchain for smart contracts, EtherChannel launched its smart contract functionality in 2015 and provides an open, distributed platform that supports decentralized applications (DApps) and DeFi projects. Ethernet's success can be attributed to its strong development community, advanced technology frameworks such as the Solidity smart contract language, and decentralized nature.
Many well-known DeFi projects such as Uniswap, Aave, Compound, and MakerDAO are built on the Ether blockchain. Although Ethernet's transaction speed and high transaction fees were once a bottleneck, with the launch of Ethernet 2.0 and the development of Layer 2 solutions (e.g. Arbitrum, Optimism), these problems have been effectively mitigated, still attracting a large number of DeFi applications to be developed.
Ether 2.0 developments and DeFi's future relevance
The upgrade of Ether 2.0 will enhance the scalability and security of the blockchain by moving to the Proof of Stake (PoS) mechanism, which will greatly improve the operational efficiency of DeFi projects and reduce transaction costs. The development of Ether 2.0 is undoubtedly a major good news for DeFi projects, and more DeFi applications will choose to deploy on Ether in the future.
Binance Smart Chain (BSC): Balancing speed and cost
Binance Smart Chain (BSC) is a blockchain platform launched by Binance, the world's largest cryptocurrency exchange, whose most important features are fast transaction speeds and low transaction fees.BSC's efficient operation has made it the preferred blockchain platform for many DeFi projects, especially for users who are sensitive to transaction speed and cost.
The advantage of BSC is that it is compatible with Ether's smart contracts, so many DeFi projects that were originally running on Ether can be seamlessly migrated to BSC, further improving their accessibility and liquidity. Decentralized exchanges (DEX) like PancakeSwap are well-known DeFi projects running on BSC, and there are many other decentralized financial tools on BSC, such as the lending platform Venus and the stablecoin system.
Decentralization and Security Issues of BSC
Although BSC performs well in terms of transaction speed and fees, its decentralization and security issues are often discussed. BSC is less decentralized than Ether, as its consensus mechanism is based on Proof of Stake (PoS) and Delegated Proof of Stake (DPoS), which results in a relatively small number of nodes, and BSC has been exposed to the risk of smart contract vulnerabilities on several occasions. Therefore, while BSC is a popular choice for DeFi applications, investors should remain vigilant and manage their risk when using these platforms.
Polygon (Matic): The Ideal Solution for Ethernet Scaling
Polygon (Matic) is an ethereum scaling solution designed to solve the problem of congestion and high transaction fees on the ethereum network. As a Layer 2 solution, Polygon utilizes sidechain technology to increase the processing power of Ether and provide a more efficient and cheaper transaction environment for DeFi applications.Polygon has enabled many DeFi projects to enjoy lower transaction fees and greater efficiency while maintaining compatibility with the Ether ecosystem.
Decentralized exchanges like SushiSwap, QuickSwap, and others have chosen to run on Polygon, and users of these DeFi platforms can enjoy a faster and cheaper trading experience.Polygon's ecosystem is gradually becoming an important extension of the Ether DeFi application, and is attracting a large number of developers and users.
Polygon's Potential for DeFi's Future
As the Ether ecosystem grows, Polygon's scalable solution will be one of the core pillars in the development of DeFi projects. Its low transaction fees and fast transaction processing will continue to attract more DeFi projects and help the whole decentralized finance to prosper.
Solana: the cornerstone of high-performance DeFi
Solana is a blockchain platform with high throughput and low latency designed for high-frequency transactions and large-scale decentralized applications.Solana's consensus mechanism, Proof of History (PoH), enables it to process more than 50,000 transactions per second, making it a significant competitor in the DeFi space. This makes it a major competitor in the DeFi space.
Solana's efficient performance has made it a popular choice for many DeFi projects, especially for applications that require high transaction speeds and low latency. For example, decentralized exchanges such as Serum and Raydium run on Solana, and Solana's ecosystem has attracted a large number of developers and users to innovate.
Solana's Challenges and DeFi's Future Implications
While Solana offers excellent performance, it still faces challenges in decentralization; Solana's relatively small number of nodes impacts its security and decentralization, and Solana has suffered from numerous network congestion and outages, which leaves its stability in need of further improvement. Nevertheless, Solana's efficient performance is still an important factor that should not be overlooked in the DeFi space.
DeFi's Future Trends in Blockchain Options
As the DeFi market continues to expand, more and more blockchain platforms will join the DeFi fray. In addition to the above mentioned Ether, BSC, Polygon and Solana, there are also emerging blockchain platforms like Avalanche, Fantom, Arbitrum, etc., which are rising, and their high performance, low transaction fees and decentralized features provide more choices for DeFi.
In the future, the choices of DeFi projects will be more diversified, and the competition among blockchains will promote the innovation of technology and the upgrading of applications. For users, choosing a suitable blockchain platform for their DeFi operation should not only consider the transaction cost, speed and security, but also pay attention to the decentralization degree of the platform and the maturity of the ecosystem.
Conclusion
The development of DeFi cannot be separated from the support of blockchain technology. Different blockchain platforms provide distinctive services and functions, which offer diversified choices for DeFi applications. With the continuous advancement of blockchain technology, more innovative DeFi projects will emerge in the future, and choosing the right blockchain platform will become a key decision for every investor and developer.
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