[Global Crypto Assets & Finance Conference 2021] “Top 10 Properties of a Good DeFi Project”_Ken Huang, CEO of DistributedApps

Session 2 : Successful Crypto Asset Investment Plan

▣ Top 10 Properties of a Good DeFi Project_Ken Huang / CEO of DistributedApps

Ken Huang, the CEO of DistributedApps announced that DeFi project is the next generation of open finance and it has good properties in terms of inclusiveness, censorship resistance and global reach etc. He continued to share how to evaluate a good DeFi project via 10 properties.

Property 1: Cost Optimization

“The first method is Cost Optimization, meaning that a good DeFi project will have a good smart contract code base which will reduce the gas cost. A DeFi project usually is calling different smart contracts. So if it has no optimization, the gas cost is expensive. A good DeFi project can let you choose how you consume the gas from which chain,” said Ken Huang.

Property 2: Smart Contract Security

“A good DeFi project at least has 1 or maybe up to 3 or 4 independent third party security companies looking at the smart contract security to validate if the contract is secure or not. Smart Contract is important because there are a lot of DeFi projects that got hacked due to the smart contract problem,” said Mr. Huang.

He continued, “Once the smart contract is deployed, it is there in the blockchain so you cannot stop it. Once the funds or coins are stolen by the hackers due to contract error, you cannot get it back.”

Property 3: No KYC

“You don’t need to register or provide a name. The key belongs to you. You can just sign in with your own wallet without providing email, phone number or even your passport. A good DeFi project has no KYC needs,” said Mr. Huang as we explained the 3rd property.

Property 4: Reduced Composition Risk

Fourthly, he mentioned, “As you know most DeFi leverages financial primitives or Money Legos. The underneath protocols are necessary to build a strong DeFi project. Usually a good DeFi project has to be time tested or battleground tested protocol to minimize the composition risk. Because if one of the underlying protocols has a risk it will certainly impact you.”

Property 5: Good Key Management, and even better DAO

“Currently and mostly, when DeFi projects start, they may be only using a single key to deploy the project or smart contract,” said Mr. Huang.

Moreover, he explained that “The properties or parameters of the smart contract can be changed with a single person or liquidity can be withdrawn by a single person. The best solution is actually having a DAO, Decentralized Autonomous Organization to manage the smart contract. So you have a voting mechanism. Key management is very important.”

Property 6: No Rug Pulling Possibilities

“Rug Pull means anonymous team, people don’t know who is behind the DeFi project, it’s not audited,” stated Mr. Huang.

“Once there is enough liquidity, they pull the rug. Meaning they withdraw the funds from the pool. It’s an exit scheme. This is not good. You need to prove that it’s not possible to do the rug pull. Especially when the smart contract is not audited, this is another red flag, also where there are no multiple signatures in place. Rug pull has happened in the DeFi and you need to be careful,” explained Mr. Huang.

Property 7: Fair Launch

“Fair Launch basically means there is no VC funding, has no pre-mining or no owner reward. It may have developer funds that are approved by the DAO organization to give founders incentives but that has to be voted by the DAO. This is called Fair Launch meaning that the DAO launch is fair to everybody,” said Mr. Huang as he concluded the 7th property.

Property 8: Self Control

Ken Huang introduced the 8th property by saying that self-control means it must be your wallet and the private key is yours. He said, “There is no centralized key management, if you need to withdraw, you don’t need to ask for approval — you can withdraw immediately.”

Property 9: Legitimate Financial Application

“DeFi has to be a financial application,” said Mr. Huang. He continued to explain what financial applications are by saying, “Such as lending applications, the DEX (Decentralized Exchanges), different kinds of DEXs. People may know that you have AMM based, order book-based, aggregator DEXs, like 1inch. Maybe the derivatives or synthetix types of projects, like you can have real-world equity, stock or gold.”

Property 10: Open Source, No Insider Trading

Last but not least, he concluded his speech with the final property: Open Source. “You have to prove that it cannot be cheated or there is no inside trading. There is potential that there is front running in DeFi projects but if you organize your structure well, you can decrease these possibilities,” he explained.

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Delio

Delio Digital Asset Finance Group, established in 2018, is №1 fintech company based in Seoul and acquired digital asset licenses from Korean and US governments.