introduction
Now, more than three years after the DeFi Summer blowout, and more than six months after the adoption of the compliance benchmark ETF, has the situation changed?
Looking back, Ethereum's smart contracts have improved the programmability of the blockchain, expanding the blockchain from a single bookkeeping function to an infrastructure supporting a variety of applications, and there is no doubt that decentralized migration of traditional finance is the most practical application scenario in many tracks.
Let's take a look at the whole picture from the DeFi TVL data on DeFiLlama. At present, the TVL of DeFi applications has exceeded 80 billion US dollars. In recent years, many public chains have emerged, and even Ethereum L2 is also diverting the space of Ethereum L1. It still holds more than half of DeFi's total assets.
DeFi's initial ambition is to try to subvert the business model of lending, payment, insurance and so on in the traditional financial system, so that users can complete these operations without relying on traditional financial institutions such as banks. But now DeFi's TVL has actually been stagnant for a long time, without a breakthrough of orders of magnitude.
Most views believe that DeFi is limited by the performance and cost of the Ethereum network, so it cannot achieve large-scale applications and achieve complex financial scenarios. However, the DeFi ecology on L2 and high-performance new public chains has not brought about a breakthrough in DeFi scale, but has brought about problems such as mobility fragmentation and interoperability decline. Ethereum has always maintained the most complete DeFi ecosystem and the most full interoperability, and is still the preferred platform for DeFi project deployment.
Today, a new trend is emerging: AgentFi, a new DeFi paradigm based on AO. This innovation is breaking the limitations of traditional DeFi.
Based on Arweave's storage layer, AO builds a computing layer that supports running processes in parallel, solving the scalability problem and achieving almost unlimited scalability. The combination of AO+Arweave is an implementation of the SCP (Storage-based Consensus Paradigm).
On AO, smart contracts exist in the form of processes. Freed from performance constraints, everyone can run their own process to proxy their financial behavior, and consensus is taken care of by Arweave's storage layer. This is the basis of AgentFi.
Will this new form of DeFi, AgentFi, replace the traditional DeFi and become the new mainstream DeFi? Let me tell you more.
Limitations of traditional DeFi
In the traditional blockchain architecture, block space is designed as a scarce resource, both users and applications need to compete to obtain this resource, and when the network is congested, people need to pay more costs to compete for block space, which is the root cause of performance limitations, and Ethereum's performance limitations have been revealed. Only about 30 TPS[1], appears to be stretched, at the peak, gas fees often soar dozens of times, people have long been accustomed to this, in fact, L2 and most high-performance public chains also exist performance ceiling, the ceiling may be higher, but want to accommodate the traditional financial scale of business, it is also very difficult.
In order to save performance footprint, save Gas for users, and improve user experience, traditional DeFi is designed to use a single smart contract to host business assets and run financial services. Since funds and business logic are governed by a single contract, it is difficult to achieve true diversification and personalization of business operations. Although such a design can simplify the management process and ensure consistency, it also deprives users of autonomy in business logic and financial operations, which is difficult to meet the needs of increasingly diversified users.
For developers, writing contracts must consider the Gas call fee, and must try to avoid writing complex contract code. On Ethereum, the Gas Limit for an ETH transfer is 21000 gwei, and for an ERC20 token transfer is 65000 gwei. Slightly more complex scenarios, such as Swap, NFT trading, and lending, require at least 300,000 gwei. [2] If the business is more complex, the gas consumption will be more unbearable for the user. This greatly limits the space for developers to play, and also limits the richness and innovation of DeFi.
In order to fundamentally solve these problems, the market needs a stronger infrastructure and supporting financial system.
AO was born, and AgentFi is a new exploration of the next generation DeFi in AO ecology.
AO: Almost infinite expansion of infrastructure
AO stands for Actor Oriented, which, as the name suggests, is a role-oriented decentralized computing protocol.
In fact, AO is closer to the concept of a world computer than Ethereum. I understand AO as a supercomputing layer whose core goal is to achieve trusted and collaborative computing services without scale constraints.
Let's take a look at the working flowchart of a hyperparallel computer built on AO:
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Message generation: A user or process initiates a request by creating a message. These messages must conform to the specifications specified by the AO protocol in order to be properly transmitted and processed in the network.
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Messenger Unit (MU) Relay: The messenger unit (MU) is responsible for receiving user-generated messages and acts as a routing role, forwarding the messages to the appropriate SU nodes in the network. In this process, MU signs the message to ensure data integrity.
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Scheduling unit (SU) processing: When a message arrives at the SU node, the SU assigns a nonce to the message to ensure its sequentiality in the same process and uploards the message and nonce to the Arweave consensus layer for permanent storage.
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Computing unit (CU) : After receiving a message, a CU executes a computing task based on the message. After the calculation, CU generates a signature with the result of the calculation and returns it to SU. This signature proof ensures the correctness and verifiability of the calculation results.
So where does the consensus come from?
On AO, storage is synonymous with consensus. Messages are passed while the process is running, and messages are written to Arweave, resulting in a "holographic state." This means that the running state of the process can be verified. That said, Arweave's immutable storage guarantees verifiability. This is a bit counter-intuitive, but if you fully understand the SCP paradigm, you'll see it instantly. If you don't understand, you can compare the inscription to understand.
Beyond verifiability, we also need to solve the problem of who will validate. With verifiability, anyone can provide verification services. On AO, applications can choose their own authentication services and have the flexibility to determine their security based on the nature of their business. With economic games combined with optimistic challenges, the reliability of the verification can be guaranteed.
On an AO-built computer, applications are built from any number of communication processes.
Processes are not allowed to share memory with each other on AO, but they are allowed to communicate via native messaging standards.
Because messaging is asynchronous, by focusing on messaging, AO implements a scaling mechanism similar to the traditional Web2 distributed system environment.
This means that in theory, there is no performance limit for AO.
For developers, you can choose public nodes, but you can also use their own nodes to run their own services, in this case, if you encounter performance bottlenecks, directly to their own nodes can be expanded, just like running Web2 services.
In addition, this mode of work also brings an additional benefit - computing nodes can provide computing power support for AI scenarios. We'll have a chance to talk about that later.
What is the difference between AgentFi?
Unlike traditional DeFi, which escrow funds and run financial services based on a unified smart contract, AgentFi's concept is that everyone can run processes on AO computers and escrow their own funds, acting as their own financial agents. What is the specific form? Let's take DEX Permaswap on AO as an example to explain it.
In traditional DeFi, assuming that Alice wants to exchange Token A for Token B, A liquidity pool is first required on DEX, with funds held in custody by smart contracts, to provide the exchange function of A/B tokens. The exchange rate of the transaction is determined by the market making curve adopted by the smart contract (e.g. x*y=k), in Permaswap, it is such that each LP holds its own market making funds through its own agent process, and customizes the market making curve and market making strategy. Of course, an LP can also employ an "extreme market-making strategy" by simply placing a limit order.
In fact, we found that Permaswap can integrate the two forms of trading AMM and order book. For the user, when the TA initiates a transaction, the match to help it complete the transaction may be AMM, it may be a limit order, or even both.
In general, AgentFi has three features:
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Self-custody: Users manage their own funds and execute their own trading strategies through a self-controlled agent process, rather than delegating to a unified contract.
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Personalization: Users can flexibly set their own financial business parameters through the agent process controlled by themselves. In other words, this is equivalent to the user opened an exchange, can customize trading strategies, rates, if extended to lending business, it can be understood as the user opened a bank, can customize the interest rate. Further, users can fully use a self-managed process to run a custom financial strategy program, or even an intelligent strategy program integrated with AI.
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Point-to-point: The matching between supply and demand is no longer the traditional DeFi point-to-pool mode, but returns to the point-to-point mode.
On Ethereum, there is a distinction between contract account (CA) and external account (EOA), different financial scenario functions are implemented through different contract codes, and financial behavior requires active participation of people. On AO, it is another concept oriented to agents. Different agents can realize different functions, and financial behaviors can rely on agents to act as agents. The author believes that the concept of AgentFi is more like building blocks, which can combine a richer decentralized financial ecology.
When you have a large number of self-hosted processes, how do you get them to communicate with each other and be composable? This is where the FusionFi Protocol comes in, which is an AO Agent development standard and communication specification. Almost all financial services can be abstracted as the transfer and processing of bills, and the FusionFi Protocol defines a set of bill format standards. With such a standard, complex and diversified financial forms can be integrated. Based on FusionFi's standards, developers can implement a wide variety of financial services such as exchanges, lending, futures, and even stablecoins. In the future, FusionFi Protocol can refer to the model of industry standardization proposal mechanisms such as BIP, EIP and NIP, so that more people can participate in the development of protocol standards and promote ecological sustainable development.
A detailed explanation of the FusionFi Protocol will be provided in a separate article.
Sum up
Ethereum's performance and cost problems limit the current pace of DeFi development, L2 and new public chain expansion, although quite effective, but there are still hidden ceilings that limit the development of financial business.
In order to completely break the ceiling, a network that is different from the traditional blockchain paradigm, the AO hyperparallel computer, came into being. The infinite scalability of AO makes AgentFi possible. Users can run their own processes, manage their own funds, and customize financial services.
Agent-based financial mode has a wider range of application scenarios than traditional DeFi.
Data source:
1.Ethereum TPS interpretation：https://www.chaincatcher.com/zh-tw/article/2102262
2.Ethereum transaction Gas consumption statistics：https://etherscan.io/gastracker
Reference materials:
1.Technical details ao hyperparallel computer：
https://mp.weixin.qq.com/s/8ociIMl_Pi28rvQJvretAg
2.AO Protocol: Decentralized, permissionless supercomputer：https://x.com/kylewmi/status/1802131298724811108
3.Smart finance: From AgentFi to FusionFi：https://www.notion.so/permadao/AgentFi-FusionFi-6461feb8915c4ea5a1252eca80aa6a4a
This article was first published in PermaDAO
Original link:
ttps://mp.weixin.qq.com/s/YUIwqIAn8X-wMF0cruvMyg