Long Term R&D: DeFi enhancements (proposal)

Roadmap
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DeFi enhancements and support

Objective: Expand support for DeFi on the Internet Computer

Background: Decentralized finance is a main use case in the blockchain space. Potential advantages of DeFi include increased security, reliability and availability of financial services, and using smart contracts such financial services may run autonomously in a transparent and predictable way. DeFi dapps can be deployed as canister smart contracts on the Internet Computer blockchain to take advantage of the ICs features including scalability and on-chain web support. This project will adapt the Internet Computer to enhance support for DeFi applications. The goal is to make it as easy as possible to develop and deploy capable DeFi dapps and participate in the DeFi ecosystem.

Current capabilities and related initiatives:

A basic set of capabilities for enabling DeFi on the Internet Computer has been made available or is already planned or worked on in related initiatives. This will, for example, enable advanced DeFi applications, such as decentralized exchanges (DEXs) based on Automated Market Makers (AMMs) or smart contracts that rely on information available in outside services.

Research topics:

First-class DeFi support on the IC requires further functionalities and efforts, for example:

  • Fiduciary subnets with more nodes and stricter security controls on canisters
  • Support for tokenization on SNSs and transfer of the tokens (see also SNS proposal)
  • Atomic transactions
  • Community standards to facilitate DeFi, e.g., a unified IC token standard (a main task of the Foundation in this area is helping coordinate and converge community efforts)
  • Support for ERC20-like and other token standards
    • A unified IC token standard (e.g, an ERC20-like standard or more advanced variant thereof that can be widely adopted by the community)
    • Specifically stablecoin / Fiat integration (this has many use cases, yet is technically just a token integration)
  • Tools to integrate with traditional finance e.g. KYC, tax reporting
  • Increased transparency and control on the IC: verifiable record of interactions with a neuron, timestamps of neuron reward events, ability to deny/accept payments to users/canister subaccounts
  • Token and assets management for ordinary users (custody services) (so users do not need to rely on key management using air-gapped computers)

In addition, it is beneficial to have the following available:

  • Guidance for dapp development, e.g., separating financial logic in immutable contracts from business logic in dapps
  • Tools to support development of secure smart contracts, e.g., formally verifiable canisters

This initiative relates closely to the related initiatives mentioned above, which can be seen as providing some of the foundational building blocks (e.g., oracle functionality or integrations with other blockchains) that are also, but not exclusively, applicable to DeFi.

Skills and expertise: A range of skills are needed here, including insight into both traditional finance and decentralized finance, and design and engineering of the IC & the IC governance and support tooling. Several teams will be involved including the Growth team for building the ecosystem, the Financial Integrations team, the NNS team and the SDK team.

How to work with the community: The community will play a direct role in this initiative in shaping DeFi standards, sharing its experience and best practices from building DeFi dapps and the resulting requirements of the IC. This interaction can take place over existing channels such as the developer forum but different approaches such as forming committees of community members are also in scope.

What we are asking the community:

  • Review comments, ask questions, give feedback
  • Vote accept or reject on NNS Motion
  • Participate in technical discussions as the motion moves forward
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