Finance as we know it has been evolving steadily, and decentralized finance (DeFi) has headlined the progress we’re seeing in this space. If the progress in fintech-leveraged internet technology to bring efficiency has increased access to simpler financial inclusions (example: India’s UPI), DeFi has elevated the offerings of financial services with the decentralization aspect. However, there is one pitfall in this burgeoning space that needs innovation to rise to the challenge. There is a gaping data availability gap in the DeFi space that can cause potential problems in the future.

Ganesh Swami Covalent

The data availability gap in DeFi  

Blockchains contain large amounts of data. Ethereum plays a labyrinthine host to several blockchain developers who are building various solutions across the spectrum. There are 215 DeFi projects built on Ethereum alone, according to DeFi Prime, and 20 projects and 26 projects built on EOS and Bitcoin networks, respectively. Not to mention 3,000-plus DApps that are presently running on Ethereum that include the present forerunners in the blockchain ecosystem like Aave, Uniswap, MakerDAO, Compound and more. To give you an idea of the data that makes up this space, the Bitcoin blockchain itself has over 330 GB of data according to Statista and the Ethereum blockchain stores about 350GB of data. We can deduce that the data gathered from the sum of these parts can only be massive.

As established, data in this space is massive, but it has the scope to grow even further. However, procuring this data and accessing it is quite a herculean task:

  • It is expensive to unearth blockchain data and requires skilled developers to procure this data.
  • Presently, the data that smart contracts hold is in the proverbial black box. Most of the data is inaccessible and not all the events are visible.
  • With the growth of innovation in technology in the blockchain industry, we’re met with new challenges, far more complex than the previous ones.

In the dialogue that has shaped blockchain technology since the inception of Bitcoin, transparency is one of the key features that make up the cornerstone of this emerging technology. As the record-keeping aspect suffers, so does this transparency in the long term. Given the increasing adoption of DeFi, access to such data (through something as simple as a .csv file) will allow users to analyze their activity and make better decisions. To be more specific, their investment performance, the hits and misses in borrowing behavior, and the realized or unrealized capital gains. Aside from the analytics, consumers need to record their investments as evidence for taxation. This could lead to potential tax liabilities or even escalate to tax evasion or fraud.

The TL;DR — a lack of access to searchable data leaves users in the DeFi space with a slim chance of making better, informed decisions in a dynamic, transitional landscape like the blockchain and crypto space.

Bridging that data gap

The data gap is real and it’s established how it can affect the user base of DeFi protocols in the long run. 

No matter, where there is a will, there is a way; as cliched as this sounds, the grit that has built the blockchain ecosystem is not to be forgotten. To retrieve historical data, users can configure a “full archival mode” with tools like Geth. However, a downside to this is the hundreds of gigabytes of space that will have to be at a user’s disposal which if not sustainable, sounds expensive, time-consuming and insane!

We have block explorers like EtherScan that can read data in a blockchain and store it in a clerical format. Ingestion services in these block explorers can consume the data that is received and present it in a clerical format. However, this would mean that we would need to trust companies that build these applications which is not entirely viable for a decentralized, trustless, permissionless environment. In this case, a long-term solution would involve private crypto companies building their own indexing APIs from scratch which is a lot of work. 

Despite this being a “possible feat,” it is also slow, ineffective such that most of the data gathered turns out incomplete, and is a solution for those with the technical know-how. But these situations put blockchain’s data indexing conundrum on the mend.

There are now innovative solutions for the Bitcoin Ecosystem as well as providers like Ethereum, Algorand, Binance Smart Chain, USDC, Polygon, Polkadot and more. Users can access analytical data that can help them make better decisions, gauge the performance of projects their invested in and find some semblance of certainty in a less deterministic space.

This opens up the scope for a better user experience and provides empirical data points to those on the traditional finance side-of-the-fence to cross over. In addition to aiding adoption, such a step forward will also demystify transparency in the overall blockchain space and bridge the DeFi gap.