In this article we're going to learn about bZx protocol working,and products and how it's different than other DeFi networks such as COMPOUND and MAKERDAO. So let's go !!
What Is bZx ?
bZx protocol is actually a set of smart contracts which is developed on Ethereum network and it cutoff the third parties & allow people to lend and perform margin trading. bZx performs all the functions that other popular DeFi networks do but other than jus lending it also integrates tokens into their functionalities.
What Was The Problem ?
If we take bZx out of the picture and look at the current scenario of how margin trading is done then we'll see that it is limited to the centralised exchanges. If a certain trader and lender use centralised exchanges and supply funds to them then it jbecome vulnerable to hacks, regulatory uncertainty and mismanagement. Along with these there is another one problem which discards one of the main purposes of blockchain (crypto in this case) is decentralisation, yes by doing so we're all encouraging a centralised entity. And many other DeFi products use oracles to bring price data, which is another contradiction to the decentralisation as oracles represents centralised entity.
What Solutions bZx Protocol Brings?
The bZx protocol performs most of the functions like lending and borrowing (margin trading) like other DeFi networks like COMPOUND and MAKERDAO but the biggest difference in others and bZx is that it uses their inherent tokens into the functionalities of protocol. There are three types of inherent tokens of bZx protocols : iToken, pToken and BZRX, all of the three tokens are ERC-20 tokens and each of them plays an very important role in the functions of bZx protocol.Â
Another solution to the use of centralised oracles for bringing price data to the system bZx is partnered with decentralised oracle service provider Chainlink to solve this problem.
How It Works ?
The bZx protocol depends on iTokens and pTokens for lending and borrowing functionality. When user lend send or borrow funds to/from the bZx it goes into or comes out the global liquidity fund which is shared between many exchanges.
Let's take a lender into account, if a lender supply fund to the bZx then he/she automatically get assigned iTokens which represents the share of the supplied fund in the global pool. These iTokens automatically generates interest on it and these are available to redeem for the provided fund and interest earned on it.
Now if borrower borrows fund from bZx protocol then the borrower gets assigned with pTokens, here 'p' stands for position which indicates both long and short positions. The borrower receives different type of pTokens based on their position and the asset they're trading. Let's understand it with a simple example, if a borrower borrows fund from bZx and open a long position for ETH/DAI for 10x leverage then the user gets assigned with 'dLETH10x' token, the worth of pToken depends on the underlying assets in this case ETH and DAI.
How Can You Use bZx Protocol ?
You can use bZx protocol from their front-end UI : Fulcrum and Torque.
Fulcrum : You can use Fulcrum for margin trading and lending your crypto assets using bZx smart contracts. You can start right now on Fulcrum without registration, just connect to metamask or othe Ethereum wallet and there is no fees for trading on Fulcrum.Â
Torque : While Fulcrum offers loans only for trading purpose Torque offers loans for any other purposes. But the main plus in Torque is that if offers fixed rates on loans for borrowers other than the fluctuating rates like many other DeFi lending protocols like COMPOUND.Â
Future Of bZx ?
The most important thing about token system is that they offers the development opportunities for the developers, where they can use these protocols as a base and build their projects as a layer.
New automatic trading platforms are being developed on bZx protocol using their iToken and there are multiple projects going to use pTokens for leveraged trading. Though some of the projects are in advanced position but most of the projects are still on the early stages. The interlocking token systems might bring the next big thing !!
This is it for now, hope you find this article informative.
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