DeFi On Steem: It Makes Sense

We all know that , especially before the situation with Justin Sun, that Steem was overlooked. The capabilities flew under the radar.

Over the past year, decentralized finance (DeFi) got a lot of attention throughout the cryptocurrency community. Suddenly, companies were offering returns to people for using their cryptocurrency. This was a novel idea, at least to the rest of the industry.

Steem, of course, had aspects to this from near the beginning. There were many ways to get a return on Steem that included both passive and active opportunities. Thus, not only was Steem cutting edge in that regard, it also makes sense from a technical standpoint.

One of the biggest benefits to building on the Steem blockchain is the idea of "fast and fee-less". Steem had 3 second block times along with no direct fees on each transaction. The later is a point that must be stressed.

Why is this important? Because when it comes to the world of finance, consistency is key.

When we look at the DeFi market, it is easy to recognize that a great deal of it was build upon Ethereum. While it is one of the better known blockchains, there are some drawbacks. The most obvious is the price of Gas on there.

This can create an issue with DeFit. Here is the experience of @edicted.

In this situation, the cost to conduct a transaction ballooned to .25 ETH (or about $30). If he was trading a million dollars, it might not be a big deal. However, if he was moving only a few hundred dollars, this is a huge chunk of change.

This is the problem with the banking system. Returns are hindered by the fees that are charged. It was an issue that cryptocurrency was suppose to solve. Yet, as we can see with Ethereum, this is not always the case. In fact, over the past couple years, we saw the same thing happen with Bitcoin and EOS.

While this is not common, it is enough to really hinder a business. Even if the high transaction costs only last a couple weeks, that can really put a dent in what one is doing. Traders often operate on tight margins, thus high fees can really affect returns, something that sets off another series of events, especially for professionals.

Steem provides the consistency of knowing exactly what something is going to cost. This is a novel approach since the blockchain does not have a fee per transaction. As long as the account has enough Resource Credits, the transaction is processed.

For this reason, it makes sense for DeFi applications to be build upon Steem. By eliminating one of the biggest concerns (and expenses) in the financial/trading fields, the level of attractiveness increases. We are seeing the entire financial sector looking to eliminate/reduce fees in an effort to gain users.

Source

When it comes to the blockchains I just mentioned, it is not a centralized entity deciding to raise transaction costs. It is actually a part of the system. Thus, the price of transactions are subject to increase/decrease as the traffic and market dictates. There simply are going to be times when the cost is outrageous.

With Steem, that is never a concern. The cost of a transaction, to the end user, is the same today as it was three years ago. Since it is constant, individuals and companies can plan accordingly. We do not have to worry about waking up tomorrow and it costs $30 to make a transaction on Steem. Obviously, this is not the case on Ethereum.

Certainly, there are drawbacks to Steem from a development standpoint in the sense it is a specialized blockchain. Thus, there is more that needs to be developed as Layer 2 solutions instead of at the base layer. While this does affect things, it also provides more security to the blockchain since the base code is not at risk. Ethereum experienced a hard fork due to the fact that a DApp bled into the base code and caused tokens to be taken.

Over the next few years, the decentralized finance is going to keep taking on a more vital role in cryptocurrency. The financial sector is enormous and the present system is filled with rent seekers. Since it is unlikely they are going to give up their piece of the pie, a paradigm shift is in order. This means more will be build upon blockchain.

Steem is one that can offer a new project a lot. Consistency in the transaction costs is near the top of the list.

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Posted via Steemleo