Tamper-Proof DeFi: Radix Aims to Make Hacks a Thing of the Past

Place/Date: - January 14th, 2021 at 7:23 am UTC · 4 min read
Contact: Radix, Source: Radix

Radix, the self-described “first layer 1 protocol specifically built to serve DeFi,” has already made a name for itself alongside scalability proposals from Ethereum 2.0, Polkadot, and Cosmos. Its unique breakthrough consensus design has proven the concept of scaling DeFi without breaking composability, challenging Visa-like speeds, and leading to a successful $12.7 million eXRD token sale, later exchangeable for native XRD tokens.

Less understood is the ability of Radix to tackle another serious obstacle in the current DeFi ecosystem that is holding back adoption: security.

Despite the success of decentralized finance in 2020, the reputation of the space was damaged as over $100 million was lost in hacks, exploits, and system failures. In fact, by the end of the year, DeFi accounted for more than half of the total losses across the entire crypto market.

This vulnerability is unsustainable, and if DeFi is to ever reach the mainstream as a disruptor of legacy finance, current security concerns must be addressed. A more purpose-built alternative to the complexity of typical smart contracts is needed to avoid the type of bugs that can be manipulated by an adversary.

The Ethereum Smart Contract Problem

Smart contracts have become the generic term to refer to developer application code used to deploy to a distributed ledger. Ethereum pioneered a specific implementation later replicated by other platforms such as Tezos, EOS, and Hashgraph. The vast majority of current DeFi applications are built on Ethereum, with Solidity being its smart contract programming language.

Ethereum smart contracts have the benefit of being both powerful and flexible, allowing for the development of a wide variety of dApps. The efficacy of Solidity comes with complexity, however, and complex code is both challenging to write and prone to errors. Not just within smart contracts, but in how they are also composed with each other, so vital for dApps that interact.

These are the errors that led to the high profile failures and exploits witnessed over the last year. A problem that is compounded by the immutable nature of distributed ledger technology, meaning that post-launch, it may not be possible for such errors to be fixed. Developers using Solidity must therefore be certain of the security of their code before launch. Professional audits help to provide reassurance, though they cannot eliminate risk. This all adds to the cost and time delays in deploying applications that are already struggling to keep up on the scalability front.

Radix believes that “building a reliable financial application is a very different problem than building a game, web service or other general application. DeFi applications are specialized, and developers should use specialized development environments for such tasks.” The Radix Engine and “Component Catalogue” is its proposed solution to that Ethereum smart contract problem.

Radix’s Solution

DeFi applications are expected to run autonomously, trustlessly, and immutably, while securely managing millions of dollars. These specialized requirements demand specialized development environments to facilitate efficient deployment and avoid errors.

Built specifically for DeFi applications, the Radix Engine delivers a secure development environment by using finite state machine (FSM) “Components” rather than Ethereum-style Turing complete smart contracts. Components can be built using a functional language called Scrypto, providing a style of programming better suited to the FSM-based solutions for building reliable, high-concurrency systems.

Components are built in a way more closely modeling the building blocks of “real-world” finance, DeFined by what is possible for that Component to do. Components avoid errors by improving composability, making them easier to design, reason with, and analyze. They allow developers to directly set their own DeFinitions of possible outcomes for a transaction, delivering predictability in the final output.

As Components become more complex and are combined, it provides both users and app developers with a powerful tool to eliminate the possibility of unexpected and expensive outcomes, even when design flaws occur.

It’s not just the development environment that empowers greater security. Radix’s Component Catalog effectively offers secure templates, configurable to create additional Components. The Catalog provides access to previously proven work, enabling efficient development of secure DeFi apps that can keep pace with innovation. An on-ledger royalty system then incentivizes the long-term development of secure Components, allowing developers that contribute to the Catalog to include a fee in transactions each time their Components are used, creating a decentralized marketplace for DeFi utility. This ensures developers are paid when their Components are used.

Preparing for the Mainstream

Decentralized finance can only go mainstream once the obstacles holding it back are removed. The Cerberus consensus mechanism concept has already proven to solve DeFi scalability without breaking composability, and Radix’s mainnet launch is expected later in the year.

The Radix Engine Component model seems to provide the ideal development environment to complement that while ensuring the security that DeFi needs.