Decentralized Finance (DeFi) on Bitcoin: A Focus on DeFi on RSK and DeFi in Africa.

Chiemelie Onyejegbu (RsK Ambassador)

INTRODUCTION Historically, central authorities have issued currencies that underpin our economies. As people developed trust in those currencies, the power of monetary systems grew. However, trust has been broken repeatedly, making people question the centralized authorities' ability to manage said money. DeFi was developed to create a financial system that is open to everyone and minimizes the need to trust and rely on a central authority. It’s argued that DeFi started in 2009 with the launch of bitcoin, the first p2p digital asset built on top of the blockchain network. Bitcoin made it possible to envision a transformation in the traditional financial world. Blockchain technology became an essential next step in decentralizing legacy financial systems. The launch in 2015 of Ethereum and, more specifically, smart contracts made it all possible. The Ethereum network is a second-generation blockchain that maximizes the potential of this technology within the financial industry. It encouraged businesses and enterprises to build and deploy projects that formed the ecosystem of DeFi. Cryptocurrencies have exploded into a trillion dollar industry, sparking a wave of worldwide financial disruption. At the heart of cryptocurrencies is a remarkable history of innovation that goes back to the 1980s and major advancements in cryptography. Since then, many events have shaped the crypto space. However, the most prominent of these is the appearance of the first cryptocurrency, Bitcoin, in 2009. Despite Bitcoin’s spectacular growth, financial services have appeared very slowly for Bitcoin — mostly due to its inherent lack of stability and adoption. Mainstream institutions won’t accept a Bitcoin loan because of its significant price volatility. It makes Bitcoin a poor asset for planning any investment accurately.Things change quickly in crypto, and decentralized finance (DeFi) is a current trend. It is being used in many new and exciting ways,

What is Decentralized Finance (DeFi)?

DeFi is short for “decentralized finance,” an umbrella term for a variety of financial applications in cryptocurrency or blockchain based on smart contracts. Most smart contracts offer Turing Complete Programming Languages that allow multiple parties to interact with each other without a centralized intermediary. Blockchain’s ability to capitalize on smart contracts makes them ideal platforms to choose when building financial applications. DeFi draws inspiration from blockchain, the technology behind the digital currency bitcoin, which allows several entities to hold a copy of a history of transactions, meaning it isn’t controlled by a single, central source. That’s important because centralized systems and human gatekeepers can limit the speed and sophistication of transactions while offering users less direct control over their money. DeFi is distinct because it expands the use of blockchain from simple value transfer to more complex financial use cases. Bitcoin and many other digital-native assets stand out from legacy digital payment methods, such as those run by Visa and PayPal, in that they remove all middlemen from transactions. When you pay with a credit/Debit card for Food at a Restaurant, a financial institution sits between you and the business, with control over the transaction, retaining the authority to stop or pause it and record it in its private ledger. With cryptocurrency, those institutions are cut out of the picture. Direct purchases aren’t the only type of transaction or contract overseen by big companies; financial applications such as loans, insurance, crowdfunding, derivatives, betting and more are also in their control. Cutting out middlemen from all kinds of transactions is one of the primary advantages of decentralized finance. Before it was commonly known as decentralized finance, the idea of DeFi was often called "open finance." DeFi consists of applications and peer-to-peer protocols developed on decentralized blockchain networks that require no access rights. The decentralized apps (dApps) are used for easy lending, borrowing, or trading of financial tools. Most DeFi applications today are built using the Ethereum network, but many alternative public networks are emerging that deliver superior speed, scalability, security, and lower costs.

Decentralized Finance (DeFi) in Africa

Africa is home to some of the world’s fastest-growing economies, has a young population, and has proven to be a fertile market for digital financial services. The continent leads the world in mobile money adoption, with digital transactions in Africa accounting for more than 45 percent of global mobile money transactions. All these factors make the continent a strong candidate for adoption of new financial services and technology. As the younger population on the continent grows the need for financial inclusion increases. As much as banks are crucial to poverty reduction and sustainable growth, they have been unable to fill this gap. As a result, mobile money and open banking platforms are rapidly taking over the role of many banks. Both are leveraging mobile phone technology and data to build efficient domestic payment and financial systems. The African fintech start-up scene has not only provided an alternative to traditional banking options, but it has also replaced traditional institutions in some places. This, however, is not a coincidence. Fintech has created a conducive environment in Africa for thousands of merchants, small businesses, and consumers to thrive and gain access to diverse financial solutions in a fast-changing and competitive world. Fintech startups have disrupted the financial sector value chain, increasing financial inclusion, innovation, and productivity throughout Africa. According to a study conducted by the European Investment Bank, sub-Saharan Africa has one of the world’s highest rates of bank account ownership. It goes on to say that digital financial services are particularly popular in rural areas where access to traditional banking is limited. Some important ways in which decentralized finance is being used to solve problems in Africa include

• Crypto trade: Cryptocurrency trading has taken off in Africa. Now it is not only Bitcoin, Ethereum is the second-largest cryptocurrency by valuation in the world, and is also the second most traded cryptocurrency in Africa. Stablecoins like USDT and USDC have also seen a massive upsurge in trading due to inflation and cross-border trading. Take Nigeria for instance, trading volumes on Paxfulexceeded N92. 25bn ($225m) between March to June 2021. A significant part of the volumes was from users trading stablecoins, especially for safekeeping and cross-border trade.

•Currency devaluation: XendFinance is a Nigerian startup building DeFi applications to solve the problem of currency devaluation and savings for credit unions. Credit unions are one of the most popular cooperatives for saving, investment, and lending in Africa. However, centralized finance means that the value of money is kept as fiat, prone to devaluation and inflation due to market forces. By allowing members of credit unions to access DeFi for their members by using decentralized stablecoins such as DAI and BUSD, they are hedging against inflation and currency devaluation.

• The Sarafu network in Kenya is building a community inclusion token that enables economic activity and peer-to-peer even on USSD. This creates possibilities for the tokenization of assets to unlock wealth from land, mineral rights, and future earnings from contracted revenue.

•Crypto Investing and saving: Joining the likes of global cryptocurrency exchanges like Binance, African crypto startups like Buycoins and Bundle are allowing investors to save their money in decentralized stablecoins for investment. This means they essentially have a tokenized dollar to allow them to build a portfolio and if needed, exchange at flexible rates for fiat currency. Also, coin locks are available to allow users and investors to keep their coins, including stable coins safe when not needed for immediate use. These financial solutions can go a long way in growing income, promoting a viable middle class, and preventing inflation that will erode one’s portfolio.

Lending is an important area where DeFi can be used in Africa. Micro and small businesses, as well as individuals, have benefited from an increase in micro-lending platforms and lend tech startups in Africa. Crypto loans are loans that are collateralised or uncollateralised and are given to borrowers in exchange for their crypto assets as collateral or no collateral at all. In this manner, the borrower obtains fiat loans from lenders in place of his crypto assets, which serve as securities in the event that the loan is not repaid.

Decentralized Finance (DeFi) Applications

Most decentralized finance applications are built on the Ethereum blockchain, the world’s second-largest cryptocurrency platform, which sets itself apart from the Bitcoin platform in that it’s easier to use to build other types of decentralized applications beyond simple transactions. These more complex financial use cases were even highlighted by Ethereum creator Vitalik Buterin back in 2013 in the original Ethereum white paper. That’s because of Ethereum’s platform for smart contracts – which automatically execute transactions if certain conditions are met – offers much more flexibility. Ethereum programming languages, such as Solidity, are specifically designed for creating and deploying such smart contracts. For example, say a user wants his or her money to be sent to a friend next Tuesday, but only if the temperature climbs above 90 degrees Fahrenheit according to weather.com. Such rules can be written in a smart contract.

The most popular types of DeFi applications include:

Decentralized exchanges (DEXs): Online exchanges help users exchange currencies for other currencies, whether U.S. dollars for bitcoin or ether for DAI. DEXs are a hot type of exchange, which connects users directly so they can trade cryptocurrencies with one another without trusting an intermediary with their money.

Stablecoins: A cryptocurrency that's tied to an asset outside of cryptocurrency (the dollar or euro, for example) to stabilize the price. Lending platforms: These platforms use smart contracts to replace intermediaries such as banks that manage lending in the middle.

"Wrapped" bitcoins (WBTC): A way of sending bitcoin to the Ethereum network so the bitcoin can be used directly in Ethereum's DeFi system. WBTCs allow users to earn interest on the bitcoin they lend out via the decentralized lending platforms described above.

Prediction markets: Markets for betting on the outcome of future events, such as elections. The goal of DeFi versions of prediction markets is to offer the same functionality but without intermediaries. In addition to these apps, new DeFi concepts have sprung up around them:

Yield farming: For knowledgeable traders who are willing to take on risk, there's yield farming, where users scan through various DeFi tokens in search of opportunities for larger returns.

Liquidity mining: When DeFi applications entice users to their platform by giving them free tokens. This has been the buzziest form of yield farming yet.

BITCOIN and Decentralized Finance (DeFi)

The majority of DeFi platforms are still built on smart contracts platforms such as Ethereum. But there are a lot of people who own Bitcoin who want to get involved too. This has led to a range of solutions being created to help Bitcoin holders invest in DeFi. Bitcoin being the biggest cryptocurrency by market cap, so there’s unsurprisingly a demand for solutions among Bitcoin holders.

How does Bitcoin DeFi work?

Bitcoin DeFi works in different ways depending on the blockchain where it's deployed.

1.Wrapped Bitcoin (WBTC) - An ERC-20 token on the Ethereum blockchain pegged 1:1 to the price of Bitcoin and backed by an equivalent amount of Bitcoin held in a digital vault. Originally started by BitGo, Ren, and Kyber, WBTC is now maintained and managed by the WBTC DAO.

2.Ren VM - A network that allows cryptocurrencies including Bitcoin to be wrapped and sent to other blockchains using the RenBridge.

3.BadgerDAO - A decentralized autonomous organization (DAO) offering solutions for using Bitcoin in the DeFi ecosystem, BadgerDAO fell victim to a $120 million hack in late 2021.

4.Stacks - An independent layer-1 blockchain linked to the Bitcoin network and supports a range of dapps.

5.RSK (Rootstock) - A smart contract blockchain operating as a Bitcoin sidechain and supporting several DeFi platforms.

Decentralized Finance (DeFi) on RSK

The RSK blockchain works as a sidechain to the Bitcoin blockchain and uses Smart Bitcoin (RBTC) as its utility token. RBTC is used to pay smart contract fees on the RSK blockchain just as ETH is used to pay fees on the Ethereum blockchain. Smart Bitcoin (RBTC) is pegged 1:1 to the price of Bitcoin (BTC). As the RSK blockchain is a sidechain of Bitcoin, there is a two-way peg between RBTC and BTC, and the two assets can be sent back and forth interchangeably between the two blockchain networks. DeFi Applications on RSK Network

A.DECENTRALIZED EXCHANGES

RsK blockchain support several exchanges like Rskswap, RBtc swap,Sovryn swap,etc RskSwap is an Automated Market Makeror AMM and a fork of UniswapV2. Simply put, AMMs are a specialized form of decentralized exchanges where token prices are determined automatically, using mathematical formulas. While traditional swap protocols put the onus of market creation on the users, RskSwap automates the process. Built on Uniswap’s pricing protocol, RskSwap automatically ensures the best possible price for trades conducted on the platform. Furthermore, RskSwap is a fully-decentralized, permissionless, secured, and censorship-resistant platform, that allows users to instantly swap ERC20 tokens. In the process, a fee of 0.3% is levied, which incentivizes the liquidity providers (users who have locked their assets). Thus, RskSwap is also self-sustaining.

How RskSwap Works

To swap tokens, you’ll need the RskSwap dApp and a NIFTY or MetaMask wallet. Once you have these set-up, you can start swapping right away. However, you’ll need to have enough RBTC to pay for the transaction, as well as the token that you want to swap. The process is simple: choose your input and output tokens, click swap and you can immediately see the output token in your wallet. Similarly, anyone can use any ERC20 token on the platform, while the users can freely audit the underlying smart contracts. In case the new token has low liquidity, the generation process is as simple as swapping. Furthermore, any user can contribute to the liquidity pool, using the RskSwap dApp. Combining these aspects, RskSwap substantially facilitates new users entry into DEX.

B.STABLE COINS Currently, several stablecoins are already present on the RSK ecosystem. Let’s take a look at some of the stablecoins:

• Money on Chain offers Dollar on Chain (DOC), a stablecoin that is collateralized with bitcoin itself and carries all the egalitarian ethos of the leading cryptocurrency such as decentralization & user-custody. Notably, there are 4 major tokens within the Money on Chain ecosystem:

1) DOC The DOC is an RRC-20 token and is collateralized with the RSK network’s native coin, RBTC. For the uninitiated, RBTC is pegged to BTC at a 1:1 ratio and allows users to seamlessly convert to and from BTC as and when they desire through a token transfer bridge. As DOC is collateralized with a bitcoin-pegged synthetic asset, the risk of counterparty default via smart contracts is minimized. Notably, DOC is designed to maintain a peg of 1DOC = 1USD. While DOC was not designed to consider the current stablecoins mechanisms, it is however geared towards identifying and aligning the interests of users of three other types of cryptocurrencies, namely BitPro, BTCX and RBTC.

2) BitPro

Unlike DOC which is pegged to the value of the USD, BitPro is an RRC-20 token that tracks the price of bitcoin. This might prompt you to ask the question, what is the difference between BitPro and RBTC as both the crypto assets track the price of the same cryptocurrency? To answer this, we must understand the difference in utilities of both RBTC and BitPro. Unlike RBTC which is the standard BTC-pegged token in the RSK ecosystem, BitPro’s functionality is a bit more specific. BitPro is nothing but the MOC version of RBTC, i.e., whenever any RBTC is sent to MOC, it is automatically converted into BitPro. The transaction occurs instantly, i.e., as soon as RBTC is moved to MOC, the blockchain instantly issues the equivalent amount of BitPro token for the user.

3) BTCX The next token in the MOC ecosystem is BTCX, which is essentially the native token of MOC’s decentralized derivatives exchange (DEX). The non-transferable BTCX token signifies leveraged positions on RBTC’s price. These BTCX positions are automatically created whenever an address sends RBTC to the DEX’s smart contracts. In a nutshell, traders who are keen to use leverage anticipating the rise in the price of RBTC can tap BTCX that works as a futures contract.

4) Money on Chain Token (MOC) Last but not least in terms of its significance, the MOC token is quintessential to the growth of the rapidly expanding MOC ecosystem. The MOC token allows its holders to participate in the governance of the platform. In addition, any MOC token holder can also provide a service to the platform and in return be eligible to receive subsidies and a certain proportion of the fees collected by the platform.

The RIF Dollar (RDOC) The RIF Dollar or the RDOC stablecoin is pegged 1:1 to the US Dollar and is guaranteed through a smart contract. Users on the ecosystem will be able to redeem their RDOC position upon the expiry of the smart contract. They can also redeem them partially during the contract’s lifespan, although this would depend on the availability of RDOC stablecoins to be redeemed. The RDOC stablecoins are fully collateralized by RIF tokens, allowing users to acquire them directly, without any collateral, as would be required on other DeFi platforms. Users can transfer the RDOC stablecoin between themselves and use it to purchase goods and services from the Rif Marketplace. The token can also be stored on any compatible hardware wallet. RDOC is backed fully by RIF tokens •Users do not need to provide any collateral •The RDOC stablecoin is guaranteed through smart contracts •Users can transfer the stablecoin, use it to purchase services •Users can redeem the RDOC token every 30 days for RIF tokens easily stored in compatible hardware wallets.

The RDOC stablecoin is unique due to the mechanism used to issue the coin. The stablecoins are minted. RDOC stablecoins are minted when there is a specific amount of RIFpro staked in the platform. This does not require the user to stake RIFpro themselves, but that RIFpro must be staked in the system before any RDOC are made available.

The DAI Stablecoin

The DAI stablecoin integration into the RSK ecosystem allows developers to improve DeFi services currently being offered on the network. It will also enable developers to create dApps on RSK and connect them with Ethereum. The DAI stablecoin integration will allow developers to leverage RSK, MakerDAO, the RIF token, and the Bitcoin ecosystem and increase demand for applications and assets without depending on the fees prevailing on Ethereum, especially with the fees on Ethereum growing as a result of the growth of DeFi over the previous months. As a stablecoin, DAI’s value is pegged to the US Dollar, with the value regulated by MakerDAO, which is its governance community. This helps to maintain its price stability. DAI stablecoins can be produced through the Maker Protocol, which accepts other cryptocurrencies as collateral. However, DAI stablecoins can also be bought directly using fiat currency on exchanges such as Kraken and Coinbase. The DAI stablecoin offers the benefits of a cryptocurrency without volatility as it is pegged against the US Dollar. The DAI stablecoin has several use cases, some of which are mentioned below •Non-fungible tokens (NFTs) •Decentralized Finance (DeFi) •Earning passive income by staking idle DAI stablecoins •Can use DAI to make in-game purchases •Unrestricted access to funds for DAI investors •Robust and secure. •Borrowing DAI to buy other cryptocurrencies

On the RSK network, the DAI tokens are known as rDAI, and users can get these tokens on RSK through the Token Bridge dApp through the Defiant Wallet. If you prefer to use other assets such as USDT, you can simply exchange them through the Defiant wallet.

BRZ Stablecoin

The BRZ stablecoin is backed by the Brazilian Real, unlike most stablecoins that the US Dollar or the Euro back. The Brazilian Real is one of the largest fiat currencies globally and is the largest in South America. BRZ is available on several platforms, working as a bridge between the blockchain market, DeFi, and investors, who don’t have to rely on stablecoins backed by foreign currency thanks to the availability of the BRZ stablecoin. BRZ claims to be the world’s largest stablecoin pegged to a national currency that isn’t the US dollar. The integration will give BRZ token holders access to lower gas fees and better security. Integrating with RSK will enable the BTZ token to be deployed on several DeFi projects. Additionally, projects on RSK will be able to leverage the BRZ stablecoin. Some advantages of the BRZ stablecoin are as follows •BRZ tokens are always entirely backed, with reserve managers keeping full reserves. •BTZ utilizes blockchain technology, already utilizing Algorand, Solana, and Ethereum blockchains. •BRZ offers increased market stability •BRZ uses smart contracts to issue and burn tokens. •BRZ gives Brazilian investors access to international platforms without being exposed to Bitcoin or any other volatile cryptocurrencies. It also enables international exchanges to seamlessly enter the Brazilian market and acquire customers easily. It also acts as a hedge, giving international businesses in Brazil an alternative to hedge their holdings in the native currency.

BLINDEX STABLECOINS

The Blindex stablecoin project transcends one token pegged to its underlying fiat equivalent, rather, it will encompass multiple coins each named with a combination of BD and the country’s generally known abbreviation. Common examples of BD-Stablecoins include BDUS (USD pegged BD-Stable), BDAU for Australian Dollar Stablecoin, BDEU for the Euros and BDUK for the stablecoin targeting the British market. While these projects will be the primary products in the Blindex ecosystem, the stablecoin platform also operates based on its native token, the BDX, a non-volatile asset associated with the platform.

C.LENDING PLATFORMS The RSK ecosystem allows DeFi protocols to build their solutions in the Bitcoin ecosystem. Secured by the Bitcoin Network, the RSK ecosystem is the safest smart contract blockchain in the world. You can stake or lend your crypto assets on any of these decentralized applications hosted on the RSK ecosystem:

1. Sovryn: Sovryn is an on-chain decentralized Bitcoin lending and trading platform on the RSK platform. The Sovryn protocol builds a permissionless financial layer for Bitcoin, extending Bitcoin’s properties into the financial sphere.
2. Tropykus: The Tropykus protocol offers accessible digital loans and credit products. It helps Bitcoin users to get financial returns on their funds. Tropykus provides a lower interest rate and better profit margin without giving up ownership of funds. Money on Chain (BTCX): The BTCX is a BTC/USD trading backed by the Bitcoin ecosystem. You can take advantage of the leverage to trade long on the Bitcoin/USD pair for massive returns.

D.PREDICTION MARKETS

The introduction of crypto prediction markets to the list of various gambling options is made possible by Web3, which has the blockchain tech to thank for its existence. Also known as the decentralized web, Web3 is the third and the latest iteration of the internet. The first version of the internet (Web1) was only readable pages, while the second version (Web2) introduced social platforms and encouraged content creation. Web3 differs from its previous two iterations because it directly incorporates blockchain, enabling users to maintain complete control over their data without relying on any third-party or centralized infrastructure. Apart from offering users full ownership of their creations, it also provides a secure, leveled playing field for anyone with the skills to develop, deploy, and monetize their projects for the entire community’s benefit. The decentralized Web3 applications seamlessly connect with blockchain protocols to enable the uninterrupted, trusted, and provably fair operation of crypto casinos and other financial platforms that support prediction markets. The prediction market models find extensive application in gambling and DeFi analogues of traditional financial instruments like futures and options, and more.

RsK and THE FUTURE OF Decentralized Finance in Africa

We’re observing a quantum leap in the new possibilities of the functionalities of money through the innovation of distributed ledger technologies. For the first time in history, a global financial system for a worldwide population is being shaped by that same population. Anyone can participate in DeFi protocols' governance and get a seat at the table where the world of decentralized finance is actively created. The DeFi space is gradually catching up with the traditional financial system. Despite some of the obstacles that come with operating on the bleeding edge of innovation, the world of decentralized finance is on the path to prosperity. When DeFi and Fintech map and merge, we'll have an inflection point where nascent financial technology is just part of a new financial system — one that realizes the dream of being fast, secure, available, and egalitarian. Blockchain platforms like RsK are revolutionizing DeFi and pushing the boundaries of Finance. DeFi applications built on the RsK network like Sovryn has seen widespread adaptability around the world and also in Africa. With DeFi, people in Africa with adequate access to banking can finally gain access to financial tools such as being provided liquidity, borrowing, lending and saving that will be essential in a growing economic market. This is possible because with blockchain technology comes DeFi which helps people become their own bank and enjoy all the services offered by traditional banking system seamlessly and more profitably. DeFi also gives access to crypto loans. While DeFi is a liberation tool to the people of Africa, there is still a wide knowledge gap as most Africans have no idea about decentralized systems, never mind how they work. There are also regulatory bottlenecks. African regulators are loathe to accept any technology that challenges their control of financial system. There is still so much sensitizing to be done and that is where blockchain education comes to play. You will agree with me that without education, there can never be adoption hence, the need for continuous education and awareness creation about blockchain technology. For more Educational materials on RsK and Blockchain technology please Visit https://www.rsk.co

REFERENCE

https://bitcoinist.com/crypto-prediction-markets-could-make-gambling-more-fun-than-ever/amp/

https://www.rsk.co/openfinance/

https://www.coinspeaker.com/blindex-stablecoin-platform-rsk/amp/

https://coinnewsextra.com/sovryn-launches-bitcoin-defi-platform-using-the-rsk-sidechain/

https://wiki.sovryn.app/en/sovryn-dapp/bridge

.