Intelligent DeFi: A New Paradigm in Decentralized Finance
Felix Pinkston Sep 18, 2024 07:45
EigenLayer introduces Intelligent DeFi, leveraging offchain compute and data to enhance decentralized finance with verifiable, trustless services.
EigenLayer, a leading player in the blockchain space, has introduced a new paradigm in decentralized finance (DeFi) known as Intelligent DeFi. This innovative approach leverages offchain compute and data to enhance the capabilities of DeFi, according to the EigenLayer Blog.
Ethereum's Role in DeFi
Ethereum has been a significant catalyst for the DeFi movement, starting with the launch of Maker in December 2017. Platforms like Uniswap and Compound soon followed, creating an economy around ETH and ERC20 tokens. This period saw the emergence of concentrated liquidity, the evolution of perpetual contracts, and the invention of flash loans, which are impossible in traditional finance.
However, the Ethereum ecosystem has faced challenges. Automated Market Maker (AMM) Liquidity Providers (LPs) have lost over $700 million due to Miner Extractable Value (MEV) since The Merge. Additionally, derivative exchanges have centralized their risk engines and order books for efficiency, and personalized loans remain elusive due to Ethereum's limitations as a finite state machine.
The Need for Modular Architectures
Many of these issues stem from Ethereum's constraints, such as gas limits, 12-second block times, and the inability to natively integrate offchain data. Modular architectures offer a solution by offloading heavy computation and integrating external data without compromising Ethereum's core security.
If the Ethereum Virtual Machine (EVM) is the glue that allows developers to write arbitrary business logic, the question arises: what should the coprocessors look like? According to Vitalik Buterin, these coprocessors could be precompiles or opcodes. However, a broader solution is needed—coprocessors that can handle computationally expensive tasks while ensuring verifiability.
Introducing Actively Validated Services (AVSs)
EigenLayer introduces Actively Validated Services (AVSs), decentralized networks of node operators aligned economically to run arbitrary node software. AVSs drastically reduce the cost of building verifiable, trustless services.
The intersection of DeFi and AVSs unlocks a range of powerful new use cases:
- Trustless offchain compute: Run heavy computations offchain and return results onchain with minimal gas fees, secured by zero-knowledge proofs or cryptoeconomic guarantees.
- Trustless offchain data: Securely pull real-world data like prices and liquidity into DeFi.
- Beyond: Enable auction networks, policy layers, and decentralized order books.
Use Cases of Intelligent DeFi
Intelligent DeFi brings real-time adaptability and personalization to decentralized finance. Here are some key use cases:
1. VIP Tier: Volume-Based Fee Tiers
Centralized exchanges offer tiered fees based on volume to subsidize market makers. Implementing similar volume-based fees on a DEX is challenging due to the need for dynamic computation and storage. By outsourcing computation to a coprocessor, traders' volumes can be verifiably computed for every transaction.
2. Dynamic, Asymmetric Fees for AMMs
AMMs can introduce dynamic and asymmetric fees to improve LP profitability. Dynamic fees adjust based on market volatility, while asymmetric fees reflect more realistic market conditions. Trusted external data is crucial for this, and zkTLS (web proofs) offers a tamper-proof solution.
3. Auction to Redistribute MEV to AMM LPs
AMMs can auction off the right to be the first swap through the pool, recapturing LVR and distributing it to LPs. A decentralized set of operators can run a low-latency, censorship-resistant auction, preserving the integrity of the process.
4. Advanced Margin System
Leveraging coprocessors for complex calculations can create a more customized risk engine for DEXs, enabling more flexible strategies and ensuring necessary liquidations.
5. Pricing an Options AMM
For options AMMs to succeed, integrating offchain data and compute for advanced pricing frameworks is crucial. This ensures accurate pricing, lower slippage, and better capital efficiency.
6. AI System for Parameters
AI-driven models can update lending protocol parameters in real-time, predicting and preventing worst-case outcomes. This approach minimizes delays and enhances governance.
7. Personalized Loans via Account History and Liquidation Risk
DeFi lending protocols can offer personalized loans by assessing onchain information and leveraging coprocessors to generate custom collateral factors and interest rates.
The convergence of DeFi and AVSs is set to revolutionize the financial landscape. From MEV-recapturing AMMs to real-time policy compliance, the potential applications of Intelligent DeFi are vast and transformative.
Image source: Shutterstock