BandChain Phase 2: Use-Cases For DeFi

This post was originally published on bandprotocol

Band Protocol is building a decentralized oracle network with optimal performance and scalability for the ever-growing world of blockchain applications. We are leading up to the Mainnet launch of BandChain Phase 2 — where the focus will revolve around enterprise and institutional integration to unlock virtually all the data for consumption on-chain.

To support the rapid innovation and ideation of DeFi, we will be releasing an ongoing series to explore different smart contract application verticals and use-cases enabled through Band Protocol oracles.

12 DeFi Use-Cases Unlocked By Band Protocol

Decentralized finance (DeFi) is the blockchain-based form of financial instruments and transactions that do not require intermediaries such as exchanges, banks or brokers but rather rely on the trusted execution of smart contracts. Smart contracts and blockchains are immutable in nature and deterministic, which means oracles such as Band Protocol play an imperative role in ensuring the correct inputs such as financial data are used in smart contract computation for the correct output.

With over $115 Billion dollars in total value locked, DeFi continues to be the industry vertical that propels blockchain technology towards mass adoption and oracles have never played a larger role in securing user funds from all over the globe.

Here are 12 different and unique use-cases in DeFi that have been enabled through Band Protocol’s decentralized, scalable and manipulation-resistant oracle technology.

Money Markets: Lending & Borrowing

Money markets consist of all projects which leverage smart contracts to bridge lenders with borrowers, most commonly for short-term loans with a length of one year or less. Lenders can supply their assets to earn yield from a fixed or variable interest rate compensated by borrowers on the other side.

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To reliably operate in a decentralized and deterministic environment, such protocols require external market and financial information to evaluate the solvency based on supply and demand forces. Reliable and accurate price information ensures that loans originate at market prices based on the supplied collateral as well as triggering liquidation events in the event that a position becomes undercollateralized past a certain threshold (loan-to-value ratio).

Venus Protocol and CREAM Finance are decentralized money market protocols that have integrated and rely on Band Protocol to secure billions of US Dollars in user deposits. Band Oracles source reliable price feeds for over 20+ digital assets supported for borrowing and lending which are aggregated from up to 10 unique data providers composed of the leading data aggregators and exchanges to ensure real-time reflection of market price.

Algorithmic Stablecoin

Stablecoins are a type of cryptocurrency that is tied to an external underlying asset such as foreign currencies or commodities. Most commonly tied to the US Dollar, stablecoins provide users a non-volatile medium to interact with different decentralized protocols or maintain market-neutral exposure. Centralized stablecoins such as USDC are usually backed by a regulated and established entity with fiat reserves, whereas algorithmic stablecoins rely on crypto-economics and over-collateralization to maintain pegs.

Balanced, the first DeFi project to launch on ICON Network, is using Band Protocol to secure hundreds of millions of dollars in collateral used to mint bnUSD — a stablecoin pegged to the US Dollar. This is achieved through Band Oracles providing real-time and reliable price feeds for collateral assets (ICX initially and to be expanded in the future), to ensure that the Balanced Protocol is adequately collateralized.

Futures/Perpetuals

Perpetual futures, a form of the futures financial derivative without a specified delivery date, enables users to hold a long or short position without expiration. A cornerstone for advanced traders to leverage or hedge their positions, perpetual futures require price feeds to calculate the appropriate funding rate to pay lenders in the event of a leveraged position and trigger liquidation events if a particular position is insufficiently collateralized with enough margin.

MCDEX is a decentralized perpetual swap protocol using Band Protocol price feeds for their V3 launch on layer-2 scaling platform Arbitrum. Leveraging the highly scalable and flexibility provided by Band Oracles, MCDEX can utilize high-performance and real-time market data to safeguard the solvency of the protocol with the user experience of a centralized exchange.

Synthetic Assets

Another form of financial derivative is a synthetic asset which provides exposure to an underlying asset such as digital assets from another network, traditional stocks, equities or commodities. This allows traders to gain price exposure to any asset that is not based on the blockchain or otherwise inaccessible due to a variety of reasons such as geographics, regulation and censorship.

Mirror Protocol and Linear Finance are leveraging Band Protocol price feeds to secure collateralization and minting mechanisms of different synthetic assets ranging from stocks, indices, commodities and digital currencies. Band Protocol is securing billions of dollars minted in synthetic assets across both platforms since launch and continues to add new assets as voted on through governance procedures.

Financial Insurance

Traditional insurance continues to be one of the lagging industries for innovation which requires manual overhead in assessing claims and often lacks transparency from policymakers. Decentralized insurance, particularly on-chain financial insurance protocols, requires a reliable source of information to submit one or more trigger events to a smart contract to enable instant settlement without interception from policymakers or policyholders. This is commonly referred to as parametric insurance.

Polkacover has teamed up with Band Protocol to bring insurance products to DeFi and crypto exchanges which aren’t widely available today. Insurance providers on the Polkacover network will work with Band Protocol to leverage the end-to-end flexibility and customizability offered to plug in their internal endpoints/APIs to track trigger events.

Asset Management

Automated asset management for interacting with DeFi protocols or managing a basket of assets for price exposure can be enabled through smart contracts. This provides users the benefits of low maintenance, reduced overhead in transaction fees or the automated execution of a predetermined strategy.

Alpha Finance is the leading provider of leveraged yield farming products which has integrated Band Protocol oracles to secure over $1.5 billion in total value locked and ensure the solvency of the protocol. Band Oracles play a critical role in ensuring the built-in lending market within Alpha Homora utilizes real-time price feeds for a dozen different digital assets.

Financial Prediction Markets

Prediction markets are exchange-traded markets that bet on the occurrences of a particular event by a predetermined date. Most commonly, for financial prediction markets, a marketplace is provided to speculate or bet on an underlying asset — normally whether it will lower or higher than a predetermined amount by a particular date in the future.

EpicX is a financial prediction market relying on Band Protocol oracles to settle markets for digital assets at different time intervals such as 5 minutes, 30 minutes, 1 hour etc. Band Oracles provide a reliable source of aggregated price data from the most liquid exchanges and data aggregators to accurately settle financial prediction markets while mitigating the probability of disputes.

Proof-of-Custody Oracles

Interacting with cross-chain DeFi applications commonly requires tokens to be bridged — locked up in a smart contract on one network and minting a ‘wrapped’ version on another. These tokens are representative of an underlying asset or position as a liquidity provider or borrower/lender. Proof-of-Custody oracles from Band Protocol reads data from the blockchain state to keep track of different minting and burning mechanisms to instantly detect discrepancies whether through an exploit or malicious actions.

Graviton is a cross-chain liquidity protocol using Band Protocol Proof-of-Custody oracles to provide users and internal monitoring mechanisms insight into real-time cross-chain events and price feeds. This brings unparalleled transparency and information for users and teams to verify, not trusting any standalone entity or smart contract to operate as intended.

Decentralized Exchanges

When interacting with centralized exchanges, users are able to act on the reliable and accurate price information for different assets to create informed decisions. Band Protocol brings the experience of using a centralized exchange to decentralized exchanges through a collection of over 230+ reference price feeds that are integration-ready on any front-end application.

Krystal uses Band Protocol to provide users with reliable data to create highly informed decisions without manually referring to external sources of information or manual verification. This will be expanded to support new asset additions, custom token lists and future products with speed to market.

Decentralized Asset Bridges

With a rapidly increasing amount of blockchain networks and platforms in production, trustless token bridges have become critical in ensuring efficient capital flow and user experience. Creating a trustless representation of any asset requires a sufficient amount of collateral or composite of the underlying asset — oracles bring safeguards and security measures to asset bridges through price feeds which are integrated within smart contract logic to evaluate solvency.

Interlay, the team building Polkadot’s trustless Bitcoin bridge, is using Band Protocol to secure the cross-chain asset bridge and determine fees paid out to bridge maintainers. With Band Oracles which are blockchain-agnostic, this can be achieved without risk of network congestion or high transaction fees.

Options

Another financial derivative is an options contract which gives holders the right to buy (call option) or sell (put option) an underlying asset before an expiration date in the future. Trustless and decentralized options require two main types of data feeds — price data and implied volatility to reliably calculate the option premium

Band Protocol can be used to connect to external endpoints and APIs from reputable sources for implied volatility such as ByBit and Deribit as well as major data aggregators and exchanges for price feeds.

Programmable & Conditional Transactions

An additional benefit of deterministic execution in smart contracts is the ability to program conditions based on a variety of inputs to execute a future transaction. When considering smart devices and IoT, where data can be fed directly into a custom oracle script on BandChain — the possibilities can be endless.

Take the supply chain industry, for instance, it is still limited by the manual paperwork and human verification points at locations. Smart contracts powered by a custom Band Oracle connected to shipping location APIs can trigger the automatic release of capital to suppliers from retailers.

This would reduce the necessity for manual payments, paperwork and verifications to create a more streamlined and efficient supply chain system.

Final Remarks

As Band Protocol grows, we continue to see the flexible oracle framework on BandChain unlock virtually any data on the open internet for decentralized applications and become leveraged in different ways never thought possible before. With theoretically infinite use-cases of how smart contracts can use Band Protocol, we are excited to work with the next generation of builders and continue innovating the decentralized oracle network for developers.

Are you looking to build a blockchain or DeFi application? We are always here to support teams looking to connect with reliable external data sources, join us on our developer channel on Discord or get started with our developer documentation.

About Band Protocol
Band Protocol is a cross-chain data oracle platform that aggregates and connects real-world data and APIs to smart contracts. Band Protocol enables smart contract applications such as DeFi, prediction markets, and games to be built on-chain without relying on the single point of failure of a centralized oracle. Band Protocol is backed by a strong network of stakeholders including Sequoia Capital, one of the top venture capital firms in the world, and the leading cryptocurrency exchange, Binance.

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BandChain Phase 2: Use-Cases For DeFi was originally published in Band Protocol on Medium, where people are continuing the conversation by highlighting and responding to this story.

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