DeFi
Decentralised finance is what you get when the machinery of finance is rebuilt on a public blockchain. The clearing house becomes a smart contract; the market maker becomes a pot of tokens and a formula; the ledger is world-readable and the functions are world-callable. What you gain is composability and the absence of a gatekeeper — any protocol can call any other, and nobody has to approve your account first. What you give up is the ability to undo a mistake.
This is the largest section of the wiki. It runs from what a currency is up to the specific mechanisms Bitsy is building, and the pages below are grouped by what they are for. The sidebar lists them in reading order.
Foundations#
The vocabulary everything else assumes. A blockchain is an append-only ledger maintained by parties who do not trust each other; a cryptocurrency is what it accounts for; a smart contract is code that lives at an address and runs when called. On top of those sit the decentralized application, the DAO that governs one, and the loose banner of Web3 covering the lot. Tokens come in two shapes — fungible, where one unit substitutes for any other, and non-fungible, where each has its own identity.
Several properties of that substrate matter enough to have their own pages: a finalized smart contract is one nobody — including its author — can change; a nonce is what keeps transactions ordered and unrepeatable; vanity addresses are what you get by mining the address derivation itself. A trusted execution environment is the hardware answer to a problem chains solve socially, and a cryptocurrency gateway is the on-ramp between this world and a bank account. Fees on a busy chain are also why micro-transactions remain hard.
Chains and platforms#
Ethereum is the reference implementation of a programmable chain and the platform most of this section assumes. The others here were each chosen for a specific property: Sui for object-centric throughput, IOTA for feeless machine-to-machine transfer, Sapphire for a confidential EVM where state and calldata are encrypted, and Arweave for pay-once permanent storage. Filecoin is the other answer to the same question, pricing storage as a dated contract with recurring proofs rather than as an endowment.
Trading and market making#
The heart of DeFi. A decentralized exchange replaces the order book with an automated market maker — a liquidity pool priced by an invariant, usually the constant product formula or its weighted cousin, the constant mean formula. Uniswap is the canonical implementation, and its concentrated liquidity rests on virtual reserves: a trick for making limited capital behave like a much deeper pool.
Providing that liquidity is not free. Impermanent loss is what the pool costs you when the price moves, volatility is the input that determines how much, and maximal extractable value is what block producers take from the ordering of your trade. Staking and yield farming are the two standard ways of being paid to leave capital in place, and transfer on join/exit vs. mint/burn is the accounting choice underneath any of them.
Oracles and automation#
A smart contract cannot see outside its own chain, and it cannot wake itself up. Both gaps have to be filled from outside. An oracle node brings external data in, Chainlink is the dominant network for doing so, and a staked consensus oracle is the design pattern that makes reported values expensive to lie about. Oracle-free pricing sidesteps the whole category by reading price off the geometry of an on-chain position instead. For the waking-up problem, a decentralized keeper runs the cron jobs of DeFi — liquidations, settlements, feed updates.
Derivatives and prediction#
Options is a section in its own right, running from what a call is up through Bitsy’s fully-collateralized cash-backed synthetic options. Alongside it, a prediction market prices the probability of an event rather than an asset, and prediction market event time is the surprisingly awkward question of when an event is deemed to have happened.
Bitsy protocol design#
The mechanisms behind Bitsy’s own contracts, several of which are novel enough to warrant a page each. Full-reserve backing and locked liquidity are the structural guarantees; together they produce a liquidity floor, a price nothing can trade below because there is nothing beneath it to sell into. A par token is the instrument those properties add up to, and a permissionless token factory is how one gets deployed without asking anyone.
The revenue side is the collateralization fee, charged against staked collateral and collected by the Fee Box. Interbox is a separate proposal: moving fiat from a US bank account to a self-custodied wallet on the strength of the KYC the bank already did.
Tooling#
Solidity patterns covers the language and the Foundry toolchain used to build and deploy these contracts. The Graph covers reading the results back out — indexing chain events into something you can query. Groth16 is the zero-knowledge proof system that shows up whenever a contract needs to verify a computation it cannot afford to re-run. Token registration is the unglamorous other half of shipping a token: ERC-20 has no icon field, so the logo beside a balance comes from six or seven separate submissions to companies that do not share data. Token false alarms is the other unglamorous half again: the same companies also run the scanners that decide whether a wallet warns about your token, and they read capabilities rather than intent, so an honest vault share reports as mintable and a regulated stablecoin trips six risk flags at once.
Law and adjacent uses#
DeFi and US regulatory restrictions is a snapshot of a fragmented and fast-moving enforcement landscape, concentrating on the jurisdictional fight between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC); the regulation section next door covers the other half — the Bank Secrecy Act, KYC, and sanctions. Smart contracts in real estate looks at the most-cited non-financial application and where it actually runs aground.
Wiki Pages#
- Blockchain
- Ethereum
- Cryptocurrency
- Uniswap
- Cryptocurrency Gateway
- Smart Contract
- Web3
- Decentralized Exchange
- Solidity Patterns
- Decentralized Autonomous Organization (DAO)
- Decentralized Application
- Finalized Smart Contract
- NFT
- Automated Market Maker
- Chainlink
- Trusted Execution Environment
- Liquidity Pool
- Sapphire
- Constant Product Formula
- Constant Mean Formula
- Virtual Reserves
- Impermanent Loss
- IOTA
- Volatility
- Sui
- Yield Farming
- Nonce
- Staking
- The Graph
- Maximal Extractable Value (MEV)
- Vanity Addresses and Salt Mining
- Oracle Node
- Prediction Market
- Prediction Market Event Time
- Options
- Arweave
- Filecoin
- DeFi and US Regulatory Restrictions
- Groth16
- Micro-Transactions
- Decentralized Keeper
- Smart Contracts in Real Estate
- Staked Consensus Oracle
- Transfer on Join/Exit vs. Mint/Burn
- Token Registration
- Token False Alarms
- Collateralization Fee
- Fee Box
- Liquidity Floor
- Oracle-Free Pricing
- Locked Liquidity
- Full-Reserve Backing
- Permissionless Token Factory
- Interbox
- Par Token
- Currency