“Covalent have a vision to empower the pioneers of tomorrow by providing the richest and most robust data infrastructure for DeFi platforms in a narrow view and the entire blockchain ecosystem in a broader view.”
Decentralized Finance (DeFi) is redefining the future of finance. There is a major shift going on in the underlying infrastructure powering financial applications, and it’s changing the way we think about permission and control, transparency and risks.
DeFi is a developing market sector within the intersection of blockchain technologies, digital assets, and financial services. According to DeFi Pulse, the value of digital assets locked into DeFi applications grew 10X from less than $1 billion in 2019, to over $10 billion in 2020, and over $80 billion at its peak thus far in 2021. Yet the DeFi applications and underlying infrastructure are still in its nascent stage of development.
While it’s easy to get caught up in the hype and speculation within the space, I’ll focus on the key components of DeFi applications and how COVALENT is powering the DeFi ecosystem; in other words, the relevance of COVALENT in DeFi.
Major Structural Commonalities Across DeFi Apps
DeFi apps are financial applications with no central counterparties. In practice this means there is no institution (e.g. banks) you are interfacing with to access these financial applications; instead users interface directly with the programs (e.g. smart contracts) on top of the protocol itself.
The major categories of DeFi apps include decentralized exchanges, lending platforms, stable coins, synthetic assets, insurance, among others. While diverse in scope, all of these DeFi apps share a major set of commonalities including:
- Using underlying blockchains as the core ledger
- Open source and transparent by default
- Open and accessible to all (permissionless).
Using Underlying Blockchains as the Core Ledger
Compared to traditional financial applications which use core banking systems (Fiserv, Jack Henry, FIS, etc.) as the underlying ledgers of record, DeFi apps use blockchains as their underlying core ledger.
A few of the most prominent blockchains used to build DeFi apps include Ethereum, Solana, and Binance Chain, etc. These underlying blockchains store the ledger state of what is deposited into the DeFi apps, what is stored within the smart contracts, all of the transactions, and withdrawals.
All of the core accounting functions to ensure matching inputs and outputs are handled by the blockchain itself, the DeFi apps don’t need to create external systems to reconcile balances, because all of the transactions are queryable across the various block explorers.
In addition, compared to the traditional system there is no separate process of settling & clearing transactions. The transaction processing, clearing, and settling all happen at the same time when the transaction is broadcasted. Although it is advisable to wait around ~21 blocks or more to ensure finality on the blockchain itself.
Compared to traditional financial applications which are all closed-source and built on top of proprietary systems, DeFi applications are typically entirely open sourced and built on top of open underlying blockchains.
Open Source and Transparent by Default
This causes three interesting properties:
- Transparency — Since the DeFi app is open source, it is completely auditable to know exactly what the smart contract is doing in terms of functions, user permissions, and user data. Unlike the traditional financial system (which is opaque), runs on a fractional reserve system, and is prone to market shocks — the DeFi system is completely transparent and over-collateralized — which allows DeFi companies to weather downturns much more efficiently.
- Composability — The DeFi app itself can be forked, remixed, and reused in many other applications.
- Auditability — Since the underlying blockchain itself is open sourced, the entire flow of funds is completely auditable including collateral in the system, trading volume, defaults, etc.
Interoperable and Programmable
In order for developers to gain the trust of users, the majority of the DeFi apps are completely open source — including the front end and the smart contracts themselves. In addition, since DeFi apps all run on top of a common platform (the underlying blockchain) these DeFi apps are completely interoperable with each other and can be programmed to work with any other DeFi app in the ecosystem.
This is commonly referred to as the “money legos” or “composability” aspects of DeFi. All of these DeFi apps are like individual lego pieces which can be remixed to work with other lego pieces to build something new.
Contrast this to the traditional financial system where;
Infrastructure Fragmentation — Traditional financial apps are not built on top of common infrastructure.
Siloed Applications — Traditional financial apps are typically proprietary to one banking institution. For example, all of Wells Fargo’s “fintech apps” work together but not across different banking institutions.
Developer Unfriendly — Traditional financial apps are not made for other developers to build services on top of.
Open and accessible to all
With traditional financial applications, new users typically need to go through a lengthy onboarding process, income verifications, credit checks, or even in person meetings — just to be able to use a given financial product.
Because of these arbitrary rules set by financial institutions, these onboarding processes are prone to bias including lending descrimination, denial of basic banking services, opening credit lines without consent, charging illegal fees, etc.
With DeFi applications, all you need is a wallet address to interact with these systems. DeFi apps don’t ask for income verification, they don’t need credit checks, and in most cases they don’t even need to know who you are outside of the wallet address you are using.
This is commonly referred to as DeFi apps being permissionless. If you have the funds inside your wallet for the transaction you want to do, you can do it. There are no institutions or intermediaries to stop or deny service to you. It doesn’t matter what your background is or what country you come from, DeFi apps do not discriminate.
This is one of the most under-appreciated aspects of DeFi products.
What is COVALENT?
Covalent is a data infrastructure company that solves data related problem on the blockchain by providing unified API to bring full transparency and visibility to assets across all blockchain networks. The blockchain contains enormous data lying around in different places without any order; internally, Covalent implement various solutions to develop an index of these blockchain data, standardize it, and make it externally available to developers in the industry through the Covalent API.
Some of these data include, but not limited to live exchange rates for supported crypto and fiat trading pairs, token balances and historical values for all digital assets, access to decoded event logs, tax liabilities for a cryptocurrency-based company, Uniswap ROI on open positions and so on. The company was co-founded and established by Ganesh Swami and Levi Aul in 2017. Let’s look closely at some of the problems that the Covalent API solves.
At the inception and the early stages of the COVALENT platform, the never of blockchains that can be queried and the possibilities with COVALENT Api can be itemized; these days (as at the time of this writing), the possibilities with the COVALENT Api are nearly endless, in other words, the list is non exhaustive.
Their Api is the absolute richest blockchain, the Api has been specifically designed to support a series of enterprise-grade use case scenarios. These include, but are not limited to cryptocurrency wallets, exchanges, custodian services, and taxation systems.
Covalent have a vision to empower the pioneers of tomorrow by providing the richest and most robust data infrastructure for DeFi platforms in a narrow view and the entire blockchain ecosystem in a broader view.
How COVALENT is Powering The DeFi ecosystem
Indexing of Different Blockchains
Different blockchains in which these DeFi platforms have been indexed into the COVALENT Api, These include:
- Ethereum main
- Binance smart chain (Testnet and Mainnet)
- Fantom Mainnet and Testnet
- Avalanche Mainnet
- Fuji-Chain testnet
- Moonbase Alpha test net
- Kovan testnet
The data of the DeFi platforms running on these indexed blockchains will then be publicly available and can be used in various ways to build scalable features for the improvement of these platforms by their team or any developer.
Provision of Enormous Data For New and Existing Projects
Historical data, liquidity transactions, network assets data, different kinds of log events and lots more of these platforms can be accessed through the COVALENT Api. A developer could use the data to build a new project streaming the live data on the Api, the Api could also be integrated with other sources if need be. Different use cases have been identified for the use of COVALENT Api — wallets, analytical tools, grabbing tools from the blockchain, NFT apps and a whole lots more.
Existing DeFi platforms use COVALENT Api for different purposes. Currently Covalent partners are more than 200 partners in its ecosystem and is still growing, all using the App for different reasons. Some inlude AAVE, 1INCH, Reef, Chain guardians,frontiers,alameda research, etc.
Data is the live of DeFi, making these blockchain data available is a huge task, but it’s doable.
No Code Solution
One of the downsides of the blockchain and it’s platforms is it’s technicality. Most times, requires a special training to understand and build on the blockchain and only advanced users benefit more.
Covalent came with a no-code solution, providing data that can be accessed with minimal knowledge of coding. These data can be accessed through your browser by just entering key values of what you’re looking for. So if you’re a novice or beginner or an experienced, advanced developer, the COVALENT Api will serve you to the fullest.
Free APi Key
All the awesome endpoints of the Api, the technical assistance in discord and many years of research are all for free. This decision was made in fulfilment of its vision to empower young daring minds wanting to build on the Api.
To access the APi, simply sign up, and get a free Api key and a giant data will be at your finger tips. New start-ups don’t usually have the funds to access real data and other efficient products for their projects and this is a major hindrance to them. COVALENT saw this and took the bold step to empower upcoming DeFi platforms.
COVALENT as A DeFi Platform
COVALENT has all the qualifications and temerity to be called a DeFi platforms; a data hub company providing data solutions to layer 1 and layer 2 blockchains.
Looking at all the commonalities of DeFi platforms — transparency, accessibility, governance, staking which are all found in COVALENT; it is therefore a DeFi platform. With that said COVALENT is therefore a DeFi platform empowering other DeFi platforms and more — how powerful they are.