Conversation with AiFi CEO：How Options Provide Insurance for Defi Trading？
What’s the hottest topic in the blockchain world these days? From decentralized exchanges of Uniswap, to liquidity mining of Compound, to Maker’s stable coin, to Aave’s P2P lending, Defi has undoubtedly become the topic around town. The Defi landscape is changing rapidly almost every day. While most people have yet to figure out what Defi is, there is a new Defi app on the market that draws great attention. AiFi, a Defi trading platform that uses options as an insurance measure while providing comprehensive Defi service from swap to yield farming.
We had the honor to interview the founder of AiFi, Brian (founder introduction). He will introduce AiFi’s options insurance as well as his latest opinion on the booming Defi world.
Brian and his team have immense experience in both traditional finance and the crypto industry. He mentioned their initial idea of starting AiFi, “I realized that Defi is going to be the first real world application of blockchain around two years ago when MakerDAO began experimenting with their Defi products. ith the development of the industry, we witnessed the early stages of a maturing of Defi market, and more and more people are understanding this concept. We are now very confident that AiFi will be a gateway for people to navigate the Defi world.
AiFi was originally conceived as an open platform that could provide users with a full range of decentralized financial services, on which users could borrow, trade, and deposit their assets for profit. However, after an in-depth analysis and investigation of the industry, they found that the most important problems users face lie in two aspects. Firstly, with the rapid development of Defi, a wide variety of Defi products, with different returns, different volatility, different risks are currently floating on the market. It is becoming more challenging for users to navigate in the current Defi world. Second, Defi is still in its infancy, and there are a lot of risks, which are often neglected or underestimated.
As a result, the AiFi’s team combined their years of experience in the financial sector and came up with an integrated Defi platform that was empowered by option and intelligent advisory. Brian said, “Option-based Defi trading and Robo advisory are two highlights of our products. Robo advisory solves the problem of the steep learning curve of users. Options-secured trading provides users a venue to hedge volatility risk.”
AiFi’s Robo advisor and information platform are easy to understand. They guide users by collecting and collating Defi products and projects in the market, taking into account their revenue and reliability, then driving AiFi ratings. Furthermore, transactions can be realized directly through AiFi Robo advisor with one click.
However, option-secured Defi trading is a whole new concept that was proposed by AiFi. Let’s take a look at Brian’s explanation: “We need to realize that the high volatility of crypto is the biggest challenge we are facing. When we deposit certain digital currency assets on a platform, our major concern is asset devaluation. If the user is involved in Defi borrowing, his collateral may be in danger of being forced into liquidation, if the collateralization ratio drops below a certain level. If he is involved in liquidity mining, the risks are greater. Options can play an important role at this point. Users can buy and “insurance” before Defi trades, that is, buy a long option to secure the collateral. That way, when the value of the collateral falls, one can simply exercise the option and maintain the value of the asset without worrying about the risk of forced liquidation.”
The above figure clearly explains the difference between option-secured borrowing and conventional borrowing, as well as the further expansion of AiFi platform’s borrowing model. That is, on the basis of the above option insurance, the liquidation risk is greatly reduced, so the platform can lend more digital assets to users, thus further lowering the loan collateralization rate.
The world of the Defi is changing very quickly, and Brian’s team is bringing a new layer of solutions to our existing products that are closer to the users than most sub-projects, which is why they have received so much attention since they launched. Technological progress or industry development is achieved by solving small problems one step at a time, and these small changes combined can push the market into a more mature state. It is believed that AiFi team’s efforts will play a very important role in the development of the whole Defi field and bring a lot of enlightenment to industry practitioners. And I’ll keep you updated on this project.