News recently emerged that CityUnited believes that a “digital pound” would help London to recover its status as a European financial hub post-Brexit. Central bank digital currencies (CBDCs) have been among the most talked-about trends in the cryptocurrency news headlines over the last year. Still, so far, only China has gone as far as implementing a digital yuan.
If the Bank of England does press ahead with a CBDC, it will likely take several years to get off the ground. However, a recently funded London-based startup called BlockSwap is aiming to put the city on the map in another of the biggest news stories in crypto over the last twelve months – decentralized finance, or DeFi.
Thanks to the potential for meteoric returns, DeFi has grown into a $50 billion market over the last couple of years. However, one challenge for DeFi users is that yields can vary wildly across different tokens and protocols. Another key challenge is that DeFi tends to work best only for those who are deeply crypto-savvy and isn’t designed for faint-hearted newcomers.
The hidden value in proof of stake networks
The bulk of DeFi’s growth has been on Ethereum. Ethereum currently operates on the same Proof of Work consensus as Bitcoin, although it’s in the process of being upgraded. Proof of Work relies on miners on the network expending computing power to demonstrate enough skin in the game to earn rewards. Ethereum is planning to upgrade to a different model, already used by several other platforms, called Proof of Stake (PoS.)
The PoS model requires network participants, known as validators, to have a certain minimum stake in order to earn rewards for validating transactions. Some platforms also allow token holders to delegate their tokens to validators. Other blockchains running this model include Tezos, Algorand, and Polkadot.
According to BlockSwap, there is massive value ready to be unlocked from PoS blockchains. In a blog post, the company wrote:
“Proof of Stake networks can unlock billions, if (not) trillions of dollars worth of its native coin, and reward them to its regular users directly. Anyone with an internet connection can now gain value through Proof-of-Stake.”
Bringing PoS value to everyday investors
BlockSwap’s protocol is technically sophisticated, but it aims to solve a singularly simple problem. When someone stakes or delegates their tokens on these PoS platforms, they are effectively locked away and untouchable until the holder unstakes them. While this is great for token prices – by lowering supply without lowering demand – it makes the tokens illiquid for the holder.
The BlockSwap Network will operate an automated liquidity layer that unlocks the value in these tokens so that users can deploy them to earn even more returns. Say, for instance, you want to delegate your Tezos (XTZ) tokens to a validator. When you do this via the BlockSwap protocol, it provides you with another token called the $aver dollar representing your stake. $Aver is compatible with other DeFi products, so you can earn even more returns, for instance, by lending it out and reaping the loan interest.
However, BlockSwap isn’t limited to those who want to participate in staking. BlockSwap offers users the chance to earn a steady 7% APY with its “Saver” feature, which it dubs a “Universal Basic Savings” tool. You can simply deposit fiat or crypto into the platform and start earning, meaning that users don’t need to know anything about DeFi, or blockchains or cryptocurrencies to start using it.
Under the bonnet, funds are locked into non-custodial smart contracts on-chain and put to work by staking them on PoS platforms. However, when a user wants to withdraw, they can do so at any time.
The road to launch
BlockSwap recently completed a successful private funding round with a group of strategic investors, including NGC Ventures, Digital Finance Group, and others. The project successfully raised $2.5 million to develop its platform. The funds will be used to support the launch of the upcoming CommunityNet, which will serve as a testing bed for BlockSwap’s product.
The CommunityNet is based on its own token type and is targeted towards more crypto-savvy users who can help to test the product and provide feedback. CommunityNet token holders can convert them 1:1 for native BlockSwap tokens at the mainnet launch. The mainnet is targeted towards those who are new to cryptocurrency and DeFi but want to gain access to sustainable high yields on their fiat or cryptocurrency holdings.
So while the government and the Bank of England focus on restoring London’s status as the hub of traditional finance in Europe, BlockSwap is making a name for the capital in the field of decentralized finance. With UK interest in cryptocurrencies currently at an all-time high, the move couldn’t come at a better time.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision.