DeFi Protocol Analysis: Decentraland

DeFi Protocol Analysis: Decentraland
Name
Institution Affiliation
Course
Date
DeFi Protocol Analysis: Decentraland
Part One
Decentralized Finance, or Defi, is a new financial technology based on blockchain principles. It uses smart contracts to offer users financial services without intermediaries such as banks and brokerages. In the United States, there are clearly defined rules formulated by the Federal Reserve and Securities Exchange Commission to govern how people access financial and capital services directly from centralized financial institutions such as banks and brokerages (Zetzsche et al., 2022). In the traditional centralized system, banks and third parties hold money, facilitate its movement from one party to another, and charge a separate fee for their services. Defi challenges this norm by offering people peer-to-peer digital exchanges. It eliminates the fees that brokerages, banks, and other financial institutions usually charge people for using their services. In the Defi system, users can store money in secure digital wallets and transfer it to others (minutesZetzsche et al., 2022). With an internet connection, people can borrow, lend and trade using different software that records and verifies financial activities in distributed financial databases. This database is accessed across different locations as it aggregates and gathers client data and uses the consensus mechanism to verify it. Thus, DeFi allows any individual to use financial services anywhere in the world and gives users more control over their money via personal wallets.
One of the projects utilizing this technology is Decentraland, a virtual reality platform thriving in the fast-growing metaverse sector (Blockchain Council, 2022). The platform allows users to become a part of its digital community. Members of this community buy digital assets such as collectables, plats of land artworks and non-fungible tokens (NFTs). The platform allows users to take real and full ownership of their digital assets. This is not the case with various other standard games because gamers lose all efforts and time invested into their games. The countless funds and time spent on game upgrades in standard games are usually difficult to recover. Nevertheless, on Decentraland, a token referred to as MANA allows gamers to convert these digital funds and assets through decentralized exchanges into crypto-currencies such as Ethereum (Blockchain Council, 2022). It operates on a blockchain technology called Ethereum and takes advantage of its security and functionality to offer an exceptional gaming experience to gamers. The platform was launched in 2017 and operated by a team of experienced and knowledgeable individuals ‌(Viktor, 2022). Esteban Ordino is the tech lead; Ariel Meilich is the project lead; Agustin Mendez is the head of the engineering department; Fede Molina is the head of marketing and growth; Nicolas Earnshaw is the developer experience manager; Alejandro Jimenez is the senior software engineer; Bence Verga is the game designer, Brian Amadori is the technical lead, and Dave Carr is the marketing specialist.
Part Two
As indicated earlier, most of today’s standard games render the gamer’s efforts and funds useless because it is difficult for users to recover them ‌(IndustryTrend, 2020). Decentraland is a gaming platform that eliminates these problems by allowing gamers to buy digital assets and convert them into crypto-currencies that are easier to recover and use in various transactions. Decentraland is a 3-D virtual game that comprises a marketplace where gamers can purchase virtuous assets such as land parcels and various customized products that can be purchased via its native token referred to as MANA, which is the Ethereum Request for Comment-20 or ERC-20 (IndustryTrend, 2020). Gamers can purchase LAND and MANA on several exchanges. Every time a gamer buys the LAND, a MANA token is burnt to record a new entry. LAND and MANA control operations on this gaming platform, where the latter is used to buy the former and other crucial virtual goods from the Decentraland marketplace. It is also important to note that the LAND is utilized as a non-fungible token to prove ownership over a particular virtual asset (IndustryTrend, 2020). Thus, MANA token plays a crucial role in helping gamers build anything they wish, monetize their assets and explore the virtual space they desire, which is not possible in other standard games.
Decentraland’s protocol comprises three layers (Blockchain Council, 2022). The first layer is the consensus layer, which allows users to track land ownership through smart contracts in the virtual world. Through the consensus layer, Decentraland maintains the ownership ledger for land assets. The non-fungible digital assets in the form of land parcels are called LAND. Each of these assets has unique coordinates (x, y), an owner, and a description file referring to the content that encodes what the landowner wants in the virtual world. Decentraland users connect to the Ethereum network to get updates concerning the state of the LAND smart contracts. The second layer is the land content layer or content distribution layer that allows gamers to utilize decentralized distribution systems such as BitTorrent and IPFS to download assets. The gamer can obtain the specifications of the land parcel in the downloaded file. The second layer enables Decentraland to function without requiring any centralized system, which allows it to shift the cost of the operating system to the same people that benefit from it. Additionally, it allows Decentraland to become resistant to censorship which eliminates the ability of the central authority to prevent users’ participation or change rules. The last layer, the real-time layer, allows users to connect and perform various transactions. It offers a URL that coordinates connections among P2P users exploring files concurrently (Blockchain Council, 2022). Thus, the third layer makes it possible for users to communicate with one another through the establishment of peer-to-peer connections. The absence of a centralized server or authority means that peer-to-peer connections must be established to offer social interactions between clients and applications wanted by landowners to run inside land parcels. Coordinating the peer-to-peer connections bootstrap requires the landowner to provide their rendezvous server to see each other in their parcels.
The interoperability of the crypto network allows gamers to value the assets they possess beyond Decentraland. The recently introduced linked wearables have also strengthened the interoperability that will allow Decentraland users to have their digital assets usable in other virtual worlds. Today, the metaverse sector is facing diverse challenges that must be solved for it to realize its full potential. One of these challenges is the increased desire of users to interact with their counterparts and travel across different virtual platforms while at the same time retaining their virtual collectibles pre-owned on their previous platforms ‌(Michael, 2022). Decentraland has realized this and has taken crucial steps in solving the problem via its innovative feature, link wearable, enabling users to transfer their digital assets across the boundaries of their virtual sphere. The initiative aims to strengthen the universal metaverse community and help attain an interconnected metaverse. This innovative feature will boost interoperability further in Decentraland by allowing users from other virtual worlds to bring their assets onto the platform. Creators seeking to enjoy the newly implemented technology must apply and obtain approval from Decentraland’s DAO by filling up and completing a proposal and going through the linked Wearable Registry option (Michael, 2022). Additionally, the community members, through the platform’s DAO procedure, can vote for users from other virtual worlds to be accepted. After we...