Boosting Cardano's DeFi

How can we encourage DeFi teams to build/deploy open finance solutions on Cardano in the next 6 months?

Fund Size: $500,000 USD paid in Ada

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Campaign Brief

The previous challenge(ScaleUP Cardano’s DeFi Ecosystem) demonstrated success and allowed popular DeFi projects such as Liqwid Finance, Minswap and ErgoDEX to be funded by the treasury, without the participation of venture capitals and with fair launch models, allowing sustainable distribution of the supply among the community/userbase.

The fact that ERGODEX’s proposal was the second best voted proposal in the Left-Over budget is an important indicator to demonstrate the competitiveness of the proposals presented in Fund5.

Currently, the vast majority of DeFi dapps and assets flows occur on the Ethereum blockchain, however due to congestion and increased transaction fees, the use of DeFi is increasingly elitized, leaving out the people who could most benefit from it, the unbanked.

Over the past year several DeFi projects have been moving to more scalable blockchains, such as Binance Smart Chain, Polkadot, Cosmos, Solana, among others. Second layer solutions are also being used as alternatives to Ethereum main chain, Polygon has been a great example.

In this migration and bridges creation scenario, some projects are turning to Cardano to create their DeFi projects.

Cardano is finally delivering smart contracts and that opens a door to a lot of innovation in DeFi. We can offer not only a scalable blockchain, but also a secure blockchain and aggregated governance layer in the near future. This set of characteristics place Cardano in a prominent place and with a good opportunity to gain market share and expand the user base.

With Catalyst, we have the opportunity to fund DeFi projects and allow them to have greater decentralization and resilience, which are essential aspects for DeFi projects. Many projects end up accepting the participation of Venture Capitals due to lack of financial resources. The participation of VCs in DeFi projects usually ends up causing a large part of the supply distribution to be alocated to VCs and this compromises the decentralization and consequently the security of these projects.

The DeFi ecosystem today is taken over by projects full of vulnerabilities, hacks are constant, economic models are copied from other projects, decentralization is no longer a priority and few projects are dedicated to create economic models/bonding curves/algorithms thinking about the users’ needs.

It has become clear over the year that bugs, hacks and vulnerabilities are not unique to smart contracts on Ethereum. Dapps running on Binance Smart Chain and Cosmos suffered from vulnerabilities as well.

Thorchain suffers $5 million exploit, developers have put out a fix

Cardano arrives to change this paradigm and bring security to users.

Privacy and resistance to censorship are also important but often overlooked in favor of subsidizing (yield farming). How to encourage DeFi projects to seek resilience, safety, research-based economic models and critical thinking?

Potential Directions

  • DEXs
  • Oracles
  • Algorithmic stable coins
  • Borrowing/Lending dapps
  • Derivatives
  • Research for open source new financial models (bonding curves)

Rational For Budget Distrobution

To encourage greater diversity of funded teams and proposals each team can request up to 20% of the total $500,000 USD budget or $100,000 USD.

E.g. - Team A with 2 proposals of $50,000 USD - Team B with 1 proposal of $100,000 USD - Team C with 1 proposal of $80,000 USD + 1 proposal of $20,000 US

why is it Important?

It’s important because Defi dApps provide trustless on-demand access to financial services for global users

How does success look like?

A competitive environment for DeFi on Cardano with an emphasis on cross-collaboration & driving composability across protocols.

Key Metrics to measure

  • How many DeFi dapps were launched on Cardano mainnet within 3, 6 and 12 months after funding.
  • How long does each dapp take to be launched.
  • How many daily active users are the DeFi dapps funded in this cohort attracting.
  • How much Total Value Locked (TVL) are the funded DeFi dapps able to capture 3, 6 and 12 months after launch.
  • Number of bugs and vulnerabilities found in each dapp.
  • Amount of resources lost due to bugs or vulnerabilities.
  • Number of users participating in testnets.
  • Number of token holders/unique wallets(when dapp has a token).
  • Distribution of supply between the team and the community.
  • Numbers of listed pairs (in case of DEXs).
  • Number of listed assets (cases of loan+lending dapps, derivatives and synthetic assets).
  • Number of articles and open source financial models research delivered to the community.