Digital Finance Summit 2022 - Training Session https://www.digitalfinancesummit.com/

1. febelfin
academy
DeFi – short introduction
Bart Bours

2. DeFi – short introduction
2

3. Agenda
3
• What is DeFi ?
• Traditional Finance
• CeFI to DeFi
• dYdX
• Jura Project

4. 4
Some articles about DeFi ?

5. Agenda
5
• What is DeFi ?
• Traditional Finance
• CeFI to DeFi
• dYdX
• Jura Project

6. What is DeFi ?
Decentralised finance (DeFi) aims to provide financial services without
intermediaries, using automated protocols on blockchains and
stablecoins to facilitate fund transfers.
6 Dec 2021 BIS Quarterly Review, December 2021
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No intermediaries protocols blockchains stablecoins
4 Building Blocks

7. What is DeFi ?
̶Besides DeFi there is CeFi and Traditional Finance
̶Let us start explaining Traditional Finance to better
understand DeFi
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8. Agenda
8
• What is DeFi ?
• Traditional Finance
• CeFI to DeFi
• dYdX
• Jura Project

9. Traditional Finance / CeFI
̶Buying shares on an Exchange
̶Security Exchange
̶ Act as central platform where
buyers and sellers meet
̶ Matches (according to rules) all
buys with matches
̶Clearing house
̶ acting as a middleman between
transacting parties
̶ Has a ledger of all transactions
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10. Traditional Finance / CeFI
̶The Clearing house and Security
Exchange are a collection of
servers in a data center with
software and a ledger.
̶For example: Euronext has a data
center in Bergamo, Italy
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11. Agenda
11
• What is DeFi ?
• Traditional Finance
• CeFI to DeFi
• dYdX
• Jura Project

12. CeFI to DeFi
̶Suppose the clearing house and its ledger are spread into several
smaller clearing houses
̶Communication is done by protocols
̶Deals/trades are settled/executed by Smart Contracts
̶Medium of exchange is a Digital Currency
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13. CeFI to DeFi
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•The several smaller clearing houses can be seen as a blockchains. Which is a distributed database or ledger that is
shared among the nodes (server) of a computer network. As a database, a blockchain stores information
electronically in digital format.
•The need for a central authority to keep a check against manipulation is eliminated by the use of a distributed ledger.
•A distributed ledger can be described as a ledger of any transactions or contracts maintained in decentralized form
across different locations and people.
•Cyber attacks and financial fraud are reduced by the use of distributed ledgers.
No
intermediaries
protocols
blockchains
stablecoins
4 building blocks

14. CeFI to DeFi
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•DeFi provides financial services without centralised intermediaries, by operating through automated protocols on
blockchains. Protocols are there for trading, lending and investing
•The protocols define the interface/communication of the network, interaction between the computers.
(Simple way: a very very very structured mail communication)
•The protocols aim to address the four principles:
• Security: Protocols maintain the security of the whole crypto network. Since the network involves the transfer
of money so protocols define the structure of data and also secure data from the malicious users.
• Decentralization: Blockchain is a decentralized network. There is no involvement of any central authority. So
the protocols authorize the whole network.
• Consistency: Whenever a transaction occurs, protocols update the whole database at each step so that each
user is well versed with the whole crypto network.
• Scalability: Scalability means an increase in the number of transactions.
No
intermediaries
protocols
blockchains
stablecoins
4 building blocks

15. CeFI to DeFi
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•Decentralised finance (DeFi) aims to provide financial services without intermediaries, using automated protocols on
blockchains and stablecoins to facilitate fund transfers. (6 Dec 2021 BIS Quarterly Review, December 2021)
•Stablecoins
•are cryptocurrencies that attempt to peg their market value to some external reference.
•are more useful than more volatile cryptocurrencies as a medium of exchange.
•may be pegged to a currency like the U.S. dollar or to the price of a commodity such as gold.
•pursue price stability by maintaining reserve assets as collateral or through algorithmic formulas that are
supposed to control supply.
No
intermediaries
protocols
blockchains
stablecoins
4 building blocks

16. 16

17. Agenda
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• What is DeFi ?
• Traditional Finance
• CeFI to DeFi
• dYdX
• Jura Project

18. DeFI: dYdx
̶dYdX is a leading decentralized exchange that currently supports
perpetual trading. dYdX runs on smart contracts on the Ethereum
blockchain, and allows users to trade with no intermediaries.
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dYdX
Ethereum Netwerk

19. DeFI: dYdx
“dYdX is a layer-two derivates protocol, community-governed… The platform currently runs on a hybrid model
whereby a portion of operations are decentralized, most notably staking and governance, while other
components,such as the off-chain order book and matching engine,are managed by dYdX Trading Inc,
alongside external support from a number of partnered centralized servers such as AmazonWeb Services.”
̶ layer-two derivates protocol
̶ off-chain order book and matching engine
̶ Staking
̶ governance
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20. DeFI: dYdx
dYdX is a layer-two
For a better understanding of Layer-2 let us first explain Layer-1.
̶ Layer-1 network is another name for the base blockchain (in dYdX case the ethereum structure is used).
Blockchain is referred to as layer-1 because it acts as the ecosystem’s main network.
̶ In case of dYdX see it as a collection of nodes (servers) with the Ethereum
Ledger and software for transaction processing.
̶ Ethereum is a blockchain with an account based system similar to a bank.
̶ Layer-1 is the main mainchain and Layer-2 the sidechain and are interoperable, they run in parallel.Layer-2
relieves Layer-1 of transaction processing.
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21. DeFI: dYdx
off-chain order book and matching engine
̶ Order books contain information about the trading activity such as the price, volume,
expiry date and whether the order is a buy or sell.
̶ When someone else sees your order on the order book, they can submit an order to the DEX, and the smart
contract will check if the funds are available for the trade. If everything is acceptable,
then the trade is made
̶ Similar to a traditional exchange
̶ The orderbook is centralized on a AmazonWebservices Server
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Orderbook

22. DeFI: dYdx
Staking
̶ To attract high quality market makers a form of credit lines (like on centralized exchanges. ) are offered
̶ this adds more liquidity without committing all of the capital from market makers
̶ Liquidity Staking Pool, (functions as a similar form of incentive that market makers are used to from centralized
exchanges)
̶ Market makers can therefore use this pool as a line of credit, and immediately
add liquidity across multiple markets on the exchange.
̶ The liquidity is offered in USDC (stablecoin). Most crypto are exchanged
against USDC
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Orderbook

23. DeFI: dYdx
Governance
̶ DYDX is a governance token issued to allow the dYdX community to govern its Layer 2 protocol.
̶ The shared control will allow participants, including partners,traders and liquidity providers,to work together
and control the enhanced protocol.
̶ DYDX token holders can participate in the governance process through the community , and propose changes
to the Layer 2 protocol. Here are some of the voting rights of DYDX holders:
̶ Set Layer 2 protocol’s risk parameters.
̶ Define the safety staking pool payout in case of a loss.
̶ Vote on adding a new token listing in the Layer 2 protocol.
̶ Govern contracts.
̶ Vote on market makers to add to the liquidity staking pool
̶ Similar to cooperatieve vennootschappen
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24. DeFI: dYdx
Recap: dYdX can be seen as a centralized exchange with a decentralized settlement
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25. 25

26. Agenda
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• What is DeFi ?
• Traditional Finance
• CeFI to DeFi
• dYdX
• Jura Project

27. BIS: Jura – Central Bank Digital Currency
direct transfer of euro and Swiss franc wholesale central bank digital currencies (wCBDCs) between French and Swiss
commercial banks on a single DLT platform operated by a third party.
̶ Project Jura involved the issuance of intraday wCBDCs and tokenised commercial paper, settled cross‑border between
France (Natixis) and Switzerland (Credit Suisse and UBS) on a DLT platform.
̶ For the purposes of the experiment, the French bank was considered a non‑resident for CHF wCBDC and the two
Swiss banks were non‑residents for EUR wCBDC.
-cross‑border settlements rely either on international arrangements or networks of
intermediaries leveraging domestic arrangements
-efficient international arrangements cover only a limited range of currencies, assets and
participants.
Consequently, cross‑border settlements can involve greater risks than domestic ones,
and are often costly, slow and opaque.
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28. BIS: Jura – Central Bank Digital Currency
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On day one
• Natixis issued EUR 200,000 worth of tokenised commercial
paper (NEU CP) and sold it to UBS.
• UBS paid for the NEU CP with intraday EUR wCBDC.
• Credit Suisse exchanged CHF wCBDC against EUR
wCBDC with Natixis.
On day two
• UBS exchanged the NEU CP with Credit Suisse against EUR
wCBDC in an offshore transaction.
On day three
• Credit Suisse returned the NEU CP to Natixis for EUR wCBDC, where it was redeemed.
• Credit Suisse exchanged EUR wCBDC against CHF wCBDC with Natixis to return holdings
to their positions on day one

29. BIS: Jura – Central Bank Digital Currency
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̶ The SDX test platform is the test environment of SDX, a Swiss exchange and central securities depository
(CSD) for tokenised assets licensed by the Swiss Financial Market Supervisory Authority (FINMA).
̶ The Digital Asset Registry (DAR) records the holdings and transfers of the NEU CP and allows the owner,
type, characteristics, notional amounts and quantities of financial instruments held to be identified. Natixis is
administrator, operator and registrar of the DAR and acts as gateway to the SDX platform.The three
commercial banks (Credit Suisse, Natixis as issuer and UBS) as well as the administrator (Natixis) have a node
on the platform.

30. BIS: Jura – Central Bank Digital Currency
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̶ Recap: Jura Project can be seen as a centralized exchange with a decentralized settlement

31. Is DeFi becoming centralized?
Is Traditional Finance becoming decentralized?
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33. Q&
A 33

34. Thank you!
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