Intelligent DeFi: Redefining the Future of Decentralized Finance

EigenLayer, a forefront entity in the blockchain realm, has launched a pioneering approach in decentralized finance (DeFi) termed Intelligent DeFi. This cutting-edge methodology harnesses offchain compute and data to elevate DeFi functionalities, as discussed in the EigenLayer Blog.

Ethereum’s Contribution to DeFi

Ethereum has played a pivotal role in propelling the DeFi movement, beginning with the launch of Maker in December 2017. Soon after, platforms like Uniswap and Compound surfaced, establishing an ecosystem around ETH and ERC20 tokens. This era saw the rise of concentrated liquidity, the advancement of perpetual contracts, and the creation of flash loans, which are unattainable in traditional finance.

Nonetheless, the Ethereum ecosystem has encountered significant hurdles. Automated Market Maker (AMM) Liquidity Providers (LPs) have faced over $700 million in losses resulting from Miner Extractable Value (MEV) since The Merge. Furthermore, derivative exchanges have centralized risk mechanisms and order books for efficiency, and personalized loans remain difficult to achieve due to Ethereum’s restrictions as a finite state machine.

The Imperative for Modular Architectures

Many of these challenges arise from Ethereum’s limitations, including gas limits, 12-second block intervals, and the inability to seamlessly incorporate offchain data. Modular architectures present a resolution by transferring substantial computations offchain and uniting external data while preserving Ethereum’s foundational security.

If the Ethereum Virtual Machine (EVM) serves as the connector enabling developers to implement arbitrary business logic, the key question is: how should the coprocessors be designed? Vitalik Buterin suggests that these coprocessors might take the form of precompiles or opcodes. Yet, a more comprehensive solution is required—coprocessors capable of managing computationally demanding tasks while maintaining verifiability.

Presenting Actively Validated Services (AVSs)

EigenLayer brings forth Actively Validated Services (AVSs), decentralized coalitions of node operators economically incentivized to execute arbitrary node software. AVSs significantly lower the expenses of establishing verifiable and trustless services.

The synergy between DeFi and AVSs unlocks a spectrum of impactful new use cases:

• Trustless offchain compute: Conduct intensive computations offchain and relay results onchain with minimal gas costs, secured by zero-knowledge proofs or cryptoeconomic assurances.
• Trustless offchain data: Safely acquire real-world data such as prices and liquidity for DeFi applications.
• Beyond: Facilitate auction networks, policy frameworks, and decentralized order books.

Intelligent DeFi Use Cases

Intelligent DeFi infuses adaptability and personalization into decentralized finance. Here are several prominent use cases:

1. VIP Tier: Volume-Based Fee Tiers

Centralized exchanges offer tiered fees based on trading volume to incentivize market makers. Implementing analogous volume-based fees in a DEX poses challenges due to the necessity for dynamic computation and storage. By delegating computation to a coprocessor, traders’ volumes can be accurately computed for each transaction.

2. Dynamic, Asymmetric Fees for AMMs

AMMs can implement dynamic and asymmetric fees to boost LP profitability. Dynamic fees adjust in line with market volatility, while asymmetric fees mirror more authentic market scenarios. Reliable external data plays a crucial role, and zkTLS (web proofs) provides a tamper-resistant solution.

3. Auction to Redistribute MEV to AMM LPs

AMMs can auction the right to execute the first swap through the pool, regaining LVR and distributing it to LPs. A decentralized network of operators can conduct a low-latency, censorship-resistant auction, ensuring the integrity of the process.

4. Advanced Margin System

Utilizing coprocessors for intricate calculations can yield a more tailored risk engine for DEXs, enabling flexible strategies and ensuring essential liquidations.

5. Pricing an Options AMM

For options AMMs to thrive, it is vital to incorporate offchain data and compute for advanced pricing models. This guarantees accurate pricing, reduced slippage, and enhanced capital efficiency.

6. AI System for Parameters

AI-driven models can adjust lending protocol parameters in real-time, anticipating and preempting worst-case scenarios. This strategy minimizes delays and boosts governance.

7. Personalized Loans via Account History and Liquidation Risk

DeFi lending platforms can provide customized loans by analyzing onchain data and employing coprocessors to generate unique collateral factors and interest rates.

The fusion of DeFi and AVSs is poised to transform the financial landscape. From MEV-recapturing AMMs to real-time compliance with policies, the potential uses of Intelligent DeFi are extensive and revolutionary.

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