Reducing the Risks in DeFi Will Take Time and Experimenting - Unhashed #6

Uncollateralized instant loans in decentralized finance, called lash loans, came into lime light very recently. A part of the popularity was becuase of the risks it brought with it due to its uncollateralized nature and exposure to hacks. But it always dropped quite a few jaws with the potential it had for DeFi.

Today, flash loans have become a key part of DeFi, and many major decentralized lending protocols have integarted flash lending services. However, there's still no dedicated flash lending platform that has solutions and services tailored specifically for users looking for flash loans.

In that regard, I interviewed Iulian Nita, the project lead of Equalizer — the world's first flash lending platform.

Q1. We all have a story of how we landed in the blockchain and crypto space. What’s your story, and how did you come by the idea of developing Equalizer?

Answer: It all started five years ago for me and my first involvement in the crypto space was crypto mining. Back in the day, when not many people knew about crypto, I started building mining rigs and minings different cryptocurrencies. 

Over time, however, I realized that crypto was only a part of what blockchain could do. The true potential of blockchain technology was what arose my real passion for this industry. It was only after that when I dedicated all my time and effort to building something for the blockchain and decentralized finance space. 

It had been an amazing four years since I began in the crypto space when I discovered the flash loan feature. Honestly speaking, I spent a sleepless night trying to understand in depth what exactly flash loans are and what they can be used for. It didn’t take me long after that to realize how powerful a service flash loan is, and that it is only available in the decentralized finance market. 

It took some more research to get to a conclusion that even though flash loans are such a critical part of DeFi, there’s no dedicated platform for flash loans. That was the moment when I knew I wanted to build my own project to offer the entire decentralized finance market a reliable and specialized tool for flash lending. 

That’s how I along with my team built Equalizer, the first dedicated flash loan marketplace built on top of a multi-chain infrastructure.

Q2. The concept of flash loans is new. So, to start with, can you explain what a flash loan is and how it works in the background?

Answer: Right, the concept is very new and still lacks enough exposure. In simple terms, a flash loan is an uncollateralized loan option that is to be borrowed and returned within the same transaction on a blockchain. 

Flash loans enable anyone to instantly and easily borrow any amount, with no collateral needed. But that is only possible if the user can return the borrowed amount to the vault within the same block of transaction. If that fails, the whole transaction is reversed, and any transaction made during that time is nullified as if it never happened. This guarantees the safety of the funds in the vaults. 

But throughout the process, there are no middlemen involved. The whole transaction is taken care of by a self-executing smart contract.

Q3. What are use cases of flash loans in the DeFi space and how can end-users benefit from it?

Answer: Flash loan use-cases include arbitrage, collateral swapping, rebalance, liquidation, and many others. The flash loan market has exponentially increased over the last 12 months with volumes reaching over a billion dollars last month. 

Flash loans enable anyone to borrow any amount to use it to make a profit or to perform some operational services in the DeFi space. For example, arbitrage traders can take flash loans to execute trades of any size to benefit from the price differences of assets on two different exchanges. 

Having flash loan services available for various crypto assets across multiple blockchains will allow the users to benefit from various arbitrage trading opportunities available in the decentralized finance market.

Q4. There are many DeFi platforms that offer flash loans. What does Equalizer do differently for its users (liquidity providers and borrowers) and how do Equalizer’s services stand out?

Answer: Even though there are a few platforms offering flash loans, none of them is doing it as a core business model. We built Equalizer to be a dedicated flash loans marketplace, specialized and tailored to scale up and to provide flash loans as its core service. 

This way, we have the full flexibility to finetune the parameters of Equalizer in a way so as to become competitive and, at the same time, reliable in all market conditions (whether it’s a bull or a bear market). 

The top differentiators of Equalizer over the popular do-it-all DeFi protocols include lower fees, a virtually unlimited choice of token vaults, high liquidity through yield farming, and multi-chain capabilities.

Q5. DeFi is still in its experimental phase and many services fail, resulting in losses worth millions. Similarly, there have been multiple flash loan-related attacks due to the inherent risks of this concept. How do you intend to tackle these risks on Equalizer?

Answer: We are aware that flash loan is a powerful tool that can be used for good/productive operations, but also may also at times prove dangerous if someone can exploit the smart contracts handling the transactions. 

We tackle these risks in two ways: 

Business: we educate users that flash loans are a useful tool for DeFi space and we explain when and how it can be used. That’s why we’ve launched a series of “flash” video lessons about this topic.

Technical: we size and tune the parameters of Equalizer in such a way that the provided services and assets have a limited capacity, big enough to take profit of different trading opportunities, but not so big as to represent a risk to the DeFi protocols. 

Q6. Equalizer plans to utilize a Layer 2 blockchain solution rather than simply deploying its contracts on Ethereum. What Layer 2 solution do you intend to use and how will this benefit the platform?

Answer: Right, we are looking very actively at the L2 solutions and we have already signed a partnership with Polygon (Matic). We are still reviewing other options and we have a clear set of criteria that need to be met before choosing to deploy on any L2 chain or any other L1 chain. 

Some of these criteria are the number of the assets present on that chain, the volume of daily transactions, the number of daily transactions, existence of a decentralized exchange, etc. For sure we will follow the market evolution and, as we are building the Equalizer platform to be multi-chain compatible, we will deploy it on any chain that can bring profit to our users. 

Q7. Given people’s lack of exposure to crypto and DeFi, what advice would you give to users willing to use Equalizer and DeFi as a whole?

Answer: I am a true believer of the DeFi market and I believe that building it in a proper way takes time. We are at the beginning of a wonderful journey, from where we have a lot to learn but also a lot to innovate. 

I am personally motivated by innovation and I believe that projects with a solid technical and business background will contribute to a reliable Defi and crypto market. The best lessons I’ve learned in my life were not by reading, but by doing, experimenting, something hands-on. 

So I encourage everyone to learn by doing. At Equalizer, we focus a lot on the user experience, we want to make it accessible and easy to use. I am convinced that Equalizer will be the gateway for many new and experienced users to reap the benefits of Defi. 

Disclaimer: The sole purpose of Unhashed is to unhash (decode) information about projects innovating using blockchain and cryptocurrencies and share it with the community. The writer does not have any vested interest in any of the projects covered herein. Not that this article shares any, but still, taking investment advice from strangers on the internet is not a wise thing to do.