Proof of reputation: the future of DeFi

Decentralized Finance (DeFi) has recently become one of the most popular concepts of the crypto world, and for good reason. The applications not only provide unprecedented possibilities for users of all backgrounds, but also do so in user-friendly and completely transparent ways. Today’s focus is on Proof of Reputation (PoR), referred to by many as the future of DeFi – read on to find out why and how you can benefit from it.

Decentralized Finance (DeFi) in a nutshell

Before going into details about Proof of Reputation, a brief introduction to Decentralized Finance (DeFi) is needed. Essentially, DeFi is a collective term for all protocols that are not controlled by a central authority, use open blockchain technology and provide equal opportunities for users to use financial services and other benefits through cryptocurrencies. There are plenty of DeFi concepts out there, including protocols that provide liquidity, decentralized exchanges (DEXs), staking options, and much more.

Proof of Work, Proof of Effort and Proof of Reputation

Now that everyone is aware of the fundamentals, the focus shifts to the details. In general, DeFi and other crypto projects all use a so-called consensus mechanism to securely deliver their services and benefits to users. Such algorithms are necessary to ensure that the nodes (computers) servicing the network are always aligned across all transactions and that the potential for malicious behavior is minimized or in some cases eliminated.

The three most popular consensus mechanisms are Proof of Work, Proof of Stake and the current favorite, Proof of Reputation, a revolutionary version of Proof of Authority.

Proof of Work (PoW) is based on a match between nodes on calculations performed. While it has been proven to be somewhat secure, and relied upon by major blockchains such as Bitcoin, it has been criticized for its environmentally unfriendly nature and scalability limitations.

Proof of Stake (PoS), for example used by Cardano (ADA), managed to improve on some of the shortcomings of PoW, as no energy-intensive actions are needed to reach consensus. Instead, nodes must use stakes tokens, which act as a kind of collateral that guarantees they won’t tamper with the network; if they do, their bet is taken by the algorithm. However, the main problem of PoS is its speed, as it cannot quite meet the throughput that would be required.

Finally, Proof of Reputation (PoR), a more secure version of Proof of Authority (PoA), implemented by Kaiba DeFi, is considered the most current and efficient system of all others. Essentially, nodes run the network and make sure the rules are followed by putting their identities on the line. This not only provides a transparent and clear way to verify nodes, but is also perfect for reaching consensus in a fast and reliable way.

Proof of reputation in practice

To illustrate how PoR works, Applications of Kaiba DeFi can be observed. These applications manage to offer superior speed and significantly lower costs than their counterparts thanks to their underlying Proof of Reputation system. Take as an example KaibaEx, the project’s Decentralized Exchange (DEX), which offers up to 20% less networking costs than other exchanges, such as Uniswap, and enables completely commission-free transactions, unmatched in the industry. Another great example would be trading KAIBAKaiba Defi’s native crypto token, which can be 60% cheaper to trade than other comparable ERC-20 tokens thanks to PoR and their contract optimization.

Final Thoughts

As demonstrated above, the groundbreaking version of Proof of Authority called Proof of Reputation (PoR) generally opens up unparalleled opportunities for projects that recognize its potential and build their ecosystem around it. Kaiba DeFi was one of the first to fully implement and capitalize on PoR, and looking at their results, we can safely say that this new consensus mechanism is indeed the future of decentralized finance.

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