A Glance at DeFi on Moonbeam
Since its launch in early 2022, the DeFi ecosystem on Moonbeam has grown in more ways than one—TVL (total value locked) and number of projects deployed. For the uninitiated, Moonbeam is the first EVM-compatible layer-1 blockchain in the Polkadot ecosystem (where size refers to the number of projects and unique wallet addresses). Moonbeam is also the most active parachain on Polkadot, boasting an average of 30,000 daily transactions (14 million since launch) and around 1.2 million unique wallet addresses. Much of the activity on Moonbeam can be ascribed to its burgeoning DeFi and NFT ecosystems.
Although the crypto market is currently in the belly of the bear market, DeFi activity on Moonbeam has been bolstered by the recent announcement of the Moonbeam Ignite campaign. As such, now is a good time to get in on the action. But which dApps should you use to participate in this burgeoning ecosystem and what are your options? This article will answer these questions by giving you a bird’s eye view of Moonbeam’s DeFi stack, offering a brief overview on the available bridges, oracles, and the most notable dApps.
Oracles on Moonbeam
Without oracles, DeFi would be near impossible to achieve. Oracles are services that feed data from the outside world into the blockchain. They are how decentralized exchanges learn about the price of tokens. For a healthy DeFi ecosystem, developers must have the freedom to build with different high quality oracles so that dApps have more robust/accurate price information. Thankfully, Moonbeam is equipped with a few high quality oracles.
Chainlink - a decentralized blockchain oracle network built originally on Ethereum but has since deployed on other EVM-compatible networks like Moonbeam.
DIA - an open-source, financial information platform that utilizes cryptoeconomic incentives to source and validate data. Market actors can supply, share and use financial and digital asset data.
Band Protocol - a cross-chain data oracle platform that aggregates and connects real-world data and APIs to smart contracts.
To see other oracles on Moonbeam, click here.
Bridges
Bridges are networks that enable users to move tokens from one chain to another. It would be disingenuous to talk about bridges without addressing the elephant in the room—security. Hackers have stolen over $1.4billion in bridge hacks in 2022. Saddening as this is, the prevalence of more bridges point to the necessity of bridges to the interoperability of DeFi applications. Without bridges, interoperability in a multichain world would be near-nonexistent. For its part, Moonbeam has opted to give its community options in the choice of which bridge to use.
Wormhole - this is a bridge that offers unlimited transfers across chains for tokens and NFTs.
Multichain - previously Anyswap, Multichain is a fully decentralized cross chain swap protocol, based on Fusion DCRM technology, with automated pricing and liquidity system.
To see other bridges on Moonbeam, click here.
dApps
As of this writing, the number of DeFi dApps on Moonbeam number over 30, including Ethereum superstars like SushiSwap, Balancer, and Curve Finance. For this reason, it will be impractical to give an overview of each dApp. Instead, I will break this dApp section into the different activities that can be carried out on Moonbeam and then touch on a few of the most notable dApps in that field (giving preference to dApps that are native to Moonbeam as opposed to those that migrated from other chains). As such, the dApps that didn’t make this list are still worthy of your attention. Simultaneously, the inclusion of the dApps on this list does not equate to a DTMB endorsement. The purpose of this article is to show what’s happening in the Moonbeam ecosystem. This is not meant to be taken as financial advice and so you are encouraged to do your own research before interacting with any of the dApps on this list.
Trading & earning
Trading involves swapping from one token to the other. Whether you are a professional trader or novice crypto enthusiast seeking to just swap a few tokens, Moonbeam has a plethora of options for you. Of Moonbeam’s DEX’s (decentralized exchanges) only three will be covered here, each offering something that others do not.
StellaSwap
Built by an anonymous team and governed by token holders, StellaSwap is one of the first automated market-making (AMM) decentralized exchanges (DEX) on Moonbeam. You can either swap tokens, provide liquidity to token pools to earn rewards, and farm (earn) other tokens by staking select assets. It offers a pretty smooth user experience thanks to
a built-in bridge for transferring tokens across blockchains
the ability for users to provide liquidity and stake in one click
a gas refund program for xSTELLA holders
As one of the Level 3 ecosystem grant recipients and co-originator of the Moonbeam Ignite campaign, StellaSwap currently has the deepest liquidity and highest rewards of all the DEXs on Moonbeam. It is currently running a live incentives program.
The team is currently working on Pulsar, a concentrated liquidity automated market making protocol that is supposedly 4000x more capital efficient for liquidity providers.
Zircon
Also built by an anonymous team, Zircon is another decentralized exchange on Moonbeam but with a major difference from most DEXs on every chain. This is due to its novel risk separation system called Pylon. With Pylon, users can supply liquidity to any token pair with just one asset, without being exposed to the two tokens at once. Zircon’s Pylon differs from protocols that ask users to provide liquidity using a single token (like StellaSwap’s 1-click staking) only to swap half of those tokens for the other pair. For example, an LP seeking to join the GLMR/USDT pool in StellaSwap’s 1-click staking function with only USDT can add the USDT to the pool in one click. However, the protocol will swap half their USDT to GLMR before putting the tokens in the pool. With Pylon, the same LP never has to interact with GLMR.
The Zircon Pylon system uses market-based incentives to strongly mitigate impermanent loss for liquidity providers. While this doesn’t guarantee full coverage to avoid taking on infinite liability, the Pylon mechanism can reduce impermanent loss by 75%-100%.
The team is currently working on a Perpetual Move system which will allow traders to turn impermanent loss into a gain. This means that they won't lose money from price movements: if the price goes in any direction, the position is in profit.
While users can also farm tokens (i.e. stake their tokens to earn other project tokens) on Zircon in principle, no farms are currently available.
Firefly
Firefly is an orderbook decentralized exchange (DEX) for perpetual swaps and options powered by Substrate. Perpetual swaps are derivatives that let you buy or sell the value of something (the “underlying asset”) with some advantages:
Unlike futures, there is no expiry date to your position (i.e., you can hold it as long as you want).
The underlying asset itself is never traded (meaning no custody issues).
The swap price closely tracks the price of the underlying asset (but can vary wildly in moments of great market turbulence).
It is easy to short.
The Firefly protocol/contracts have been audited by Peckshield, Quantstamp, Halborn, and Trail Bits. While it has been around the Moonbeam ecosystem since almost the beginning, Firefly is still early in its launch cycle. It recently launched to select members of its community so the team can iron out any flaws with the service before a full launch.
Upon full launch, the exchange will have deep liquidity bolstered by the raise of $22.8m from some of the largest market-makers (MMs) in crypto including but not limited to Hypersphere, Polychain, DeFiance, CMS, Divergence, MGNR, Altonomy, and more.
Lending & borrowing
Moonwell
Moonwell is an open lending, borrowing, and decentralized finance protocol on Moonbeam built by an experienced team which include several former Coinbase and Google blockchain engineers specialized in DeFi and security. Moonwell also has advisors from Coinbase, O1 Labs, Dapper Labs, and Sushi to name a few.
On Moonwell, users can lend and borrow crypto assets. Lenders earn fees. As one of the Level 3 ecosystem grant recipients and co-originator of the Moonbeam Ignite campaign, Moonwell currently has the deepest liquidity and highest rewards of all the lending and borrowing protocols on Moonbeam. It currently has an incentives program going on.
Moonwell’s primary mechanism for securing the protocol is the Safety Module – a smart contract that allows users to stake their assets in order to protect and mitigate against "Shortfall Events". A Shortfall Event occurs when there is a deficit in the markets of the Moonwell ecosystem. When this happens, the Safety Module is used to cover the losses by selling the assets needed to mitigate the deficit
Voting power and governance rights over Moonwell are derived from the protocols' native governance token $WELL.
Yield optimization
Beefy Finance
Born on September 21, 2020, Beefy Finance is a decentralized, multi-chain yield optimizer platform that allows its users to earn compound interest on their crypto holdings. Through a set of investment strategies secured and enforced by smart contracts, Beefy Finance automatically maximizes the user rewards from various liquidity pools, automated market making (AMM) projects, and other yield farming opportunities in the DeFi ecosystem. The main product offered by Beefy Finance are the ‘Vaults’ in which you stake your crypto tokens. Despite what the name ‘Vault’ suggests, your funds are never locked in any vault on Beefy Finance: you can always withdraw at any moment in time. There are currently 656 vaults and $278.91m in TVL (total value locked) as at 10th November 2022. Unlike most of the protocols in this article, Beefy Finance has a presence on 18 chains including Ethereum and its L2s.
Like StellaSwap and Zircon, Beefy Finance is also led by an anonymous team of founders and builders.
To view all the DeFi dApps building on Moonbeam, click here.
Conclusion
While EVM is the dominant virtual machine for building dApps in 2022, it is not ideal to expect that it will remain so. But even if it did remain so, the fact of EVM is that it has some limitations, a few of which are:
No native governance
No straightforward staking
Moonbeam, being a parachain on Polkadot and having the flexibility of Substrate (the framework used for building Polkadot and all its parachains), provides the best of both worlds. While it is still early days in Moonbeam’s development journey, I am excited about DeFi on Moonbeam for two main reasons:
Moonbeam’s connection to Polkadot means that it has the potential to be connected to every parachain that eventually deploys on Polkadot. What this means is that Moonbeam is not limited by the capability of its own chain. Rather, it can augment its limitations with the help of other parachains on Polkadot. For the uninitiated, Polkadot is a layer-0 blockchain that connects layer-1 blockchains. Thanks to Polkadot’s design structure, different layer-1 blockchains can work together to provide services that only one layer-1 blockchain would be unable to. This is traditionally called interoperability. While most new-age blockchains claim to be interoperable, their interoperability ends at transferring tokens via bridges. I call this ‘weak interoperability’. What Polkadot offers is ‘strong interoperability’, which allows different layer-1 blockchains to call/initiate functions on other chains in a permissionless manner. This makes it possible to build dApps that utilize the services of more than 1 layer-1 blockchain. For example, a DeFi developer on Moonbeam can build a lending and borrowing dApp that leverages Litentry (a decentralized identity parachain) for user identity. This can be especially useful for lending and borrowing dApps that want to build credit scores for users so as to offer under-collateralized loans. If this wasn’t good enough, then consider that Moonbeam is not limited by the parachains available to Polkadot because it can also connect to chains outside of Polkadot via Axelar and LayerZero.
The Moonbeam foundation has, since the beginning, focused on developer relations. Proof of this lies in the fact that despite there being various EVM-compatible blockchains, none of them have adopted a unified accounts and private key format that allows Ethereum users to seamlessly migrate with their current keys. Furthermore, Moonbeam is fully-compatible with all Ethereum development tools like Truffle, Remix, Hardhat, Waffle, Scaffold-eth, and many other well-known tools.
When both these reasons are put together, immense possibilities for DeFi innovation on Moonbeam beckon.
Written by Gbaci with Downtown Moonbeam Support
https://twitter.com/gbaciX