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Under the Hood of Radix: What It Means to Build for DeFi

September 18, 2020 Off By TCA PR

Radix DLT has recently made waves in the cryptocurrency community, specifically the DeFi space, as it is expected to quickly become one of the biggest players. This, in no small part, is due to Ethereum’s inability to keep up with the demand because of its underlying technology. A deeper dive into the technology powering Radix, seen through three features, explains exactly why the newcomer may well take over and rebuild the space to meet all current and future needs.

Feature One: Radix & Ren Wrapping Services

A wrapped token is an asset hosted on one blockchain that is not its native one, with the same price as the original. This is most often done on the Ethereum blockchain: for a token to get the operability features that ERC20 tokens have, it is created on Ethereum with the same data as the original, mimicking the transfer from one blockchain to another. 

Radix has brought the same feature to its own project through a partnership with the Ren Protocol, becoming part of the Ren Alliance along with a number of other projects. The Ren Protocol provides wrapping services in a decentralized manner, removing the risk that centralization inherently brings. 

With this partnership, Radix has made the first step towards bridging the gap between the Ethereum ecosystem and others who would provide layer-1 solutions in the DeFi space. This levels the playing ground for newcomers, while reducing the pressure upon Ethereum and allowing the industry to keep growing organically. Additionally, it provides much-needed liquidity to all participants while reducing the associated fees.

Feature Two: Dev Incentives

As Radix puts it simply, “The world runs on open source code.” But when it comes to contributing to open source code, many developers find that the only incentive they have is their own passion and interest in the topic. While that has given us a lot of innovation over the years, many other developers — who would have wanted to participate — were unable to do so because they had to prioritize paying jobs. 

The Radix team wants all their contributors to have a financial reward for participating, no matter how much they were able to build. They call it the Developer Royalties System: a decentralized, self-incentivizing, on-ledger way for developers to get paid on an ongoing basis for their help.

Radix reinvents smart contracts through a feature they call Components. Whenever a developer creates a Component, they get to set a royalty fee that is later paid to them whenever the Component is used. Since there are different ways to use a Component, developers are able to set different fees for each possibility.

This means that both developers who would like to create a single Component they believe will be useful in the future and those who want to stay with Radix for longer periods of time and contribute more are paid according to how much they contribute. If you would rather not quit your full-time job to participate, you’re free to do so at the rate you’re comfortable with and still receive compensation. But the same also holds true if you do want to spend a lot of time tinkering with Components.

Feature Three: Cerberus and DeFi

Perhaps not a feature as such — every distributed ledger needs a consensus algorithm. The one used by Radix is called Cerberus and is based on practical Byzantine fault tolerance (pBFT), but introduces a partial ordering regime which significantly speeds up the usual waiting time, bringing it down to a mere five seconds.

Cerberus introduces sharding to the process of reaching consensus. In other words, instead of having the whole network vote on every single issue, related commands are grouped together, separated from the rest, and voted upon by a fraction of the network. In traditional pBFT networks, all commands must be stored in a chronological order, which is known as global ordering. Omitting that from their DLT meant that Radix also had to come up with an alternative to smart contracts, and so the above mentioned Components were born.

A term often used when talking about scalability is the so-called scalability trilemma, coined by Ethereum’s founder Vitalik Buterin, which states that between security, scalability, and decentralization in a blockchain, you can have only two. Radix approaches this problem by completely reinventing what we know about blockchain. In other words, Vitalik’s trilemma may hold true, but only in the case of traditional blockchains.

Cerberus, along with other Radix features, is set to fix the issues in DeFi that Radix lists in their DeFi whitepaper, like speed, scalability, and the lack of incentives. All of these issues (and a few more) are standing in the way of mass adoption. While the DeFi space is already huge (USD 8.83 billion locked in as of the time of writing), it is not even close to the size of the global financial system. As many crypto enthusiasts know, traditional finance tends to have a high barrier of entry. Most of that is stripped away in DeFi, so many users who are unable to buy and hold financial instruments the old-fashioned way are more than happy to do so in a decentralized manner.

Given the current breakneck speed at which the DeFi industry is growing, the features Radix is introducing are expected to ensure the growth is sustainable by preparing the groundwork for long-term commitment.

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