DeFi project highlights from the ETHDenver hackathon

This weekend saw over 2,000 Ethereum developers, entrepreneurs, and enthusiasts flock to the Mile High City for ETHDenver, the largest Ethereum hackathon and conference in the U.S.

With Decentralized Finance (DeFi) momentum continuing to grow at rapid pace, many teams sought to leverage existing primitives to create value-add services and enhance user experience, laying the foundations for wider adoption.

Here’s an overview of several DeFi projects that stood out from the crowd.

Delfi

A portmanteau of Delphi and DeFi, Delfi is a simple, on-chain, on-demand price oracle providing a liquidity-weighted index of ETH/DAI spot prices from the three highest volume decentralized exchanges. Future iterations will have the capacity to support additional pairs, such as ETH/MKR and ETH/REP.

In addition, Delfi also provides a ‘cost to move the ETH/DAI price by 5 percent’ metric, thereby providing a quantifiable threshold of economic activity that the price can safely support.

Delfi is useful for any application that requires an objective, trustless price feed. At present, the most obvious use case would be MakerDAO.

MakerDAO requires CDPs to maintain a 150 percent collateralization ratio between ETH collateral and borrowed DAI. If a user were to post $150 worth of ETH, they can borrow anywhere up to $100 in DAI. If the colleratalization ratio falls below 150 percent, liquidation proceedings commence, with collateral seized to cover any outstanding debts and fees.

Maintaining sufficient collateralization is paramount to the stability of the MakerDAO system. As such, it is necessary for there to be an oracle that can constantly and accurately monitor the value of ETH.

At present, the reference price for the MakerDAO system is provided by a ‘medianizer’, a smart contract that collates price data from a number of external price feeds. A handful of Maker stakeholders constantly monitor the reference price across a number of external sources and submit updates if the source price differs from the most recently submitted price by more than 1 percent and/or if the price update was more than six hours ago. The medianizer smart contract then takes the median of all price feeds.

While, to date, the medianizer has successfully served as a price oracle, there remains considerable room for improvement.

First, there is a trusted element in that price feeds are submitted by a set number of individuals. While practically unlikely considering their intimate involvement in the Maker project, theoretically these parties could collude, submit inaccurate data, and profit from ensuing chaos. Moreover, the price feeds are not weighted by volume and are not updated in real-time, and so do not necessarily always accurately reflect true price.

Delfi’s innovation is to remove these trusted parties, instead relaying information directly from decentralized exchanges — Delfi currently uses Uniswap, Bancor, and Eth2Dai as its sources. Weighting the price by volume, and updating the price every block, the oracle provides a more accurate picture of the ETH/DAI market at any moment in time.

The ‘cost to move price 5 percent’ feature is also useful in that it gives application users and developers a sense as to what kind of economic activity they can safely support. If a user is aware that an attacker can trigger liquidations by spending just $260,000 to move the price by 5 percent, they can use that information to carefully assess how much ETH they should be willing to lock up as collateral in their CDPs.

Safe CDP

Another MakerDAO inspired project, Safe CDP is a cryptoeconomic network that allows CDP owners to safeguard their collateral from liquidation, thereby reducing capital inefficiencies that arise from over-collateralization.

As discussed, Maker CDP owners are required to maintain a minimum 150 percent collateralization ratio. However, due to the volatile nature of the underlying collateral, CDP owners tend to over-collateralize: the average collateralization ratio across outstanding CDPs is currently 377.13 percent.

Source: mkr.tools

This is highly inefficient — any excess collateral comes with high opportunity cost, preventing CDP owners from using their ETH, selling their ETH, or lending their ETH.

Safe CDP is essentially a decentralized margin call protocol — if the value of a user’s collateral drops below a certain threshold, Safe CDP provides a window in which economically incentivized third parties can add collateral.

The system architecture contains three agents: CDP owners, Keepers and Sponsors.

As a CDP owner, you enter your CDP ID, select the ‘Secure CDP’ feature, and enter the following parameters: target collateralization (percentage), margin call threshold (percentage), margin call duration (hours), and the reward (percentage). CDP owners can also include a phone number to receive notifications. Once you submit the parameters, you create a smart contract that governs and controls your CDP.

Sponsors are existing Dai holders that want to return some kind of yield on their holdings. Sponsors deposit Dai into the Sponsor Pool, allowing Keepers to use it to pay down outstanding debt.

The Keeper Program is an off-chain server that notifies the smart contract when Safe CDPs are below the collateralization ratio. Keepers then use funds from the Sponsor pools to pay down Dai debt, returning the collateralization ratio to a safe percentage.  

The CDP owner will then pay back the Sponsor their principal plus interest in an agreed upon time window. If the CDP owner fails to cough up the funds, the Safe CDP smart contract triggers a penalization mechanism, which liquidates some of the CDP owner’s collateral in order to pay the Sponsor.

With this margin call mechanism in place, CDP owners can now afford to lower their collateralization ratios, decreasing the cost of capital and helping the Dai supply scale in an efficient manner.

zDai.io

The transparent nature of cryptocurrencies like Bitcoin, Ether, and Dai means that, with enough time and effort, third parties like Chainalysis, or Coinbase’s recent acquisition, Neutrino, can identify individuals based off of their transaction history. This can lead to uncomfortable consequences, like the revelation of prior purchases, insight into an individual’s personal wealth, or economic attacks through front-running and counter-trading.

Privacy coins like Zcash and Monero attempt to address these concerns by obfuscating transaction data, but their volatility detracts from their utility as a medium of exchange.

Enter zDai, a project that has implemented ZkSNARKS on the xDai burner wallet, providing users with a fast, stable, and private medium of exchange. Users can convert xDai into zDai directly through the burner wallet interface, and then transact in a way that hides the amount and parties involved in the transaction.

The current iteration of zDai has room for improvement — generating zero knowledge proofs can take up to a minute and gas costs can be prohibitively expensive. Nevertheless, zDai deserves recognition and applause as the first digital asset to closely replicate cold hard cash – a trustless, private, fungible bearer asset.

ETH This Then That

Inspired by If This Then That, a web service that creates chains of conditional statements, a team of ConsenSys engineers have built ETH This Then That (ETTT).

Currently hosted on the Rinkeby test network, ETTT allows anyone to connect a multitude of DeFi apps without writing a single line of code. Simply select a ‘trigger’ (‘ETH price drops below $X’, ‘Token transfer occurs’, ‘Every ETH block mined’ etc.), specify the action you wish to perform (‘Transfer ETH’, ‘Add collateral to CDP’, ‘Send SMS message’ etc), sit back and relax.

While ETTT currently only offers four triggers and actions, the possibilities are seemingly endless. An action could be created that buys or sells a certain amount of a cryptocurrency via Uniswap depending on a price trigger, essentially creating stop-loss and buy-stop order features, or lend or borrow a certain amount based on Compound’s variable interest rate, or sends a text notification every time a MolochDAO proposal needs to be voted on.

ETTT could also be used to replicate a lower-cost Safe CDP project, with collateral added or debt wiped from a CDP directly from the CDP owner’s wallet if the collateralization ratio falls below a certain threshold.

Universal Wallet:

The friction involved in onboarding new users into the crypto ecosystem is palpable. Even the most friendly experience requires a multitude of steps: setting up a Coinbase account, buying ETH, setting up a MetaMask account, and then transferring ETH from Coinbase to MetaMask. If users want to store value in a stablecoin, like Dai, then they must jump through an additional number of hoops, exchanging their ETH for Dai on an exchange like Uniswap.

Universal Wallet (UW) provides a simple method for onboarding, radically reducing the number of steps required to start interacting with Ethereum. UW leverages the Universal Login SDK, Wyre, and the Create2 operation code.

Users first choose a name for their account and then deposit funds with a debit or credit card using Wyre. Create2’s magic means that fees are only paid once a transaction takes place. Moreover, the Universal Wallet allows users to pay relayers, which propagate messages around the network, in Dai, meaning that users never even need to own ETH.

You can find presentations of the above projects here (Delphi: 56:44, Safe CDP: 2:10:05, zDai.io: 18:38, Universal Wallet: 1:27:20).