DeFi uses a multi-layered architecture with 5 layers: The settlement, asset, protocol, application, and aggregation layers. Every layer has its own distinct purpose.
The Settlement layer (1) consists of the Blockchain and its native protocol asset. It allows the network to securely store ownership information and ensures that any of the state changes adhere to the network’s ruleset. As such, the Blockchain can be seen as the foundation for trustless execution and serves as a settlement and dispute resolution layer. The Ethereum Blockchain used is the Settlement layer in many of the DeFi applications.
The Asset layer (2) consists of all tokens that are issued on top of the settlement layer. This includes the native protocol asset as well as any additional tokens that are based on token standards supported by the Blockchain. ERC-20 tokens are an example of an asset in this layer which is used as a core to build app tokens over it.
The Protocol layer (3) provides standards for specific use-cases such as decentralized exchanges, debt markets, derivatives, and on-chain asset management. These standards are usually implemented as a set of smart contracts and can be accessed by any user (or DeFi application). As such, these protocols are highly interoperable. An example would be a Security Token ERC-1404 mapped to an actual company’s share which is mapped in a Blockchain register managed by the Share Custodian. Another example would be decentralized stable coins like DAI which uses the Maker Protocol, the smart contracts that power Dai.
The Application layer (4) creates user-oriented applications that connect to individual protocols. The smart contract interaction is usually abstracted by a web browser-based front end, making the protocols easier to use. An example of this could be a Token enabled marketplace where investors can buy tokens managed by the Custodian as explained in Protocol Layer 3.
The Aggregation layer (5) is an extension of the application layer. Aggregators create user-centric platforms that connect to several applications and protocols. They usually provide tools to compare and rate and services, allow users to easily perform otherwise complex tasks by connecting to several protocols simultaneously, and finally combine relevant information in a clear and concise manner. An example could be a Fund House who created a Token Fund by making a Portfolio of Tokens of different business sectors and sells them as a Fund to end investors, almost like Mutual funds we buy in the real world. There could also be a Lending company that can give loans against tokens and get interested from the lender.
Following is how Finminity platform is aligned with the DEFI layers and what are the functions that each layer brings into the overall ecosystem
- DeFI TOKEN ENGINE : Finminity Tokenization Engine allows companies to do asset token mapping, onboarding the company on Blockchain, ERC 20/1404 standard Token Creation, and Token Allocation to investors. This token engine also does the KYC check of the company before it is onboarded.
- REGULATED FUNDRAISE: Through our integrated YourVC Platform companies who tokenize on Finminity can raise funds in a regulated manner by selling their tokens through a watertight KYC AML process, under the supervision of regulators. Investors can use the Marketplace to sell these tokens to get liquidity.
- DEFI INVESTOR SERVICES: Through a DeFi aligned Investor Services module, Investor Resolution Management and Voting, Milestone based Escrow and Payments, Dividend Distribution, and Investor money return on company failure. All of these are done on the Ethereum based DeFi module.
- ORACLES FOR 3rd PARTY INTEGRATION: With Ethereum Oracles and API Integration with Finminity to Broker/Dealers, Fund Houses, Lending Service Providers, the Tokens can be packaged as Investment Products bearing interest and sold to external investors. Even investors can get loans against these securities.
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