Mathematics and Technology Are Unlocking a New Golden Era for DeFi

I have loved mathematics for as long as I can remember, the more complex, the better. As I learned more about the real-world impact of numbers, I developed an equal passion for technology. So I have two good reasons for believing that, together, mathematics and technology are poised to change finance forever.

I'll explain in detail why this is and why that conviction led me to join DefiEdge, a project that allows me to work at the forefront of this revolution. But first I must rewind a few years, both in my story and the history of cryptocurrency investment.

Immediately after completing my Bachelor of Technology in computer science in New Delhi, I moved more than 4,000 miles away to Scotland, where I earned at the University of Edinburgh a Master of Science in artificial intelligence, a field then in its infancy.

I began my career digging into AI's intricacies. I published research on topics such as how to design computer networks that perceive images in the same way as the human brain does and built recommendation engines that used machine-learning algorithms to pinpoint products and services best suited to individual needs.

There was certainly enough intellectual challenge in AI to keep me fascinated forever had it not been for the May 2021 launch of a game-changing software update by Uniswap, the largest decentralized exchange for buying and selling cryptocurrencies.

Unlike exchanges such as Coinbase and Binance, which are managed by centrally controlled entities, Uniswap and other decentralized exchanges let users trade digital assets without the intervention of a third party. Unfortunately, because they were smaller and, in the early days, more difficult for investors to navigate, these DEXs, as they are known, underperformed their centralized peers in one key area: liquidity.

Instead of the steady flow of buyers and sellers who keep markets moving in centralized finance, DEXs were forced to rely on liquidity providers: users who provide necessary capital in exchange for financial rewards.

But Uniswap's update, its V3, had a significant innovation: a concept called concentrated liquidity, which allowed liquidity providers to target their investments and thus earn more while investing less. This at once made providing liquidity more appealing and freed up capital for reinvestment around the whole crypto ecosystem.

By finding an innovative way to help DEXs massively increase liquidity, Uniswap V3 sowed the seeds for the investing revolution I referred to above. It also drew me away from the world of pure AI into decentralized finance—DeFi as it is known.

And here is where our stories converge: mine and that of DefiEdge.

Although Uniswap V3 may look straightforward to the untrained eye, it was mathematically very complicated. Consumed by a desire to understand it, I became one of the first people to delve into its inner workings. In fact, the technical analysis of V3 I wrote the month of the release is used as a reading assignment in a Stanford University course, Cryptocurrencies and Blockchain Technologies.

For me, Uniswap V3 married the best of AI and blockchain. Drawing on my fascination with both, I started creating Uniswap V3 risk analysis engines. Then I discovered DefiEdge, an asset management protocol built on top of Uniswap V3 that offered a huge range of features. It was a perfect fit.

We have spent two years adding functionality to make liquidity management even simpler and more rewarding, and now I have a front-seat view as the curtain rises on a new era for the cryptocurrency industry, one in which we plan to play a leading role.

So how do I see that era progressing?

It began on April 1, the day the license that prevented developers from copying Uniswap V3's groundbreaking code expired. Uniswap's competitors, on alert for this change, rushed to adopt concentrated liquidity and other features that helped make Uniswap V3 by far the largest DEX by trading volume.

The adoption rush has already begun boosting trading volumes across DeFi. Importantly, this rise is coinciding with a crisis of confidence in centralized finance caused by the failure of prominent crypto exchanges and traditional banks.

According to recent data, the monthly trading volumes in centralized crypto exchanges, although improved from the disastrous fourth quarter when FTX collapsed, were down 16.8 percent year-over-year in the first quarter.

DEXs, meanwhile, have outperformed their centralized counterparts in many areas, liquidity included. First-quarter data, which captures market realities before the license expiration, shows Uniswap V3's liquidity rose 208 percent year-over-year.

I believe investors will increasingly turn to DeFi in a quest for safety and higher returns. This influx, coupled with the capital released by the spread of concentrated liquidity, will make the system even more capital-efficient.

All major DEXs have already adopted concentrated liquidity or will soon. And I believe they will also team up with asset management protocols so they can offer users a complete package.

We at DefiEdge are working to develop partnerships and integrations with concentrated liquidity DEXs, such as the exotically named and ever-popular ApeSwap.

My goal now, which mirrors DefiEdge's ambition, is to catalyze further growth in the new, more capital-efficient DeFi space. Not only should investors and institutions have the ability to earn excellent returns. I am convinced they should be able to use a platform that is completely decentralized, which makes it extraordinarily secure.

I am privileged to be in the vanguard. If we get this right and harness the innovation, increased capital efficiency and additional trading volumes, investors and fund managers will have the best of both worlds: the flexibility of traditional finance paired with all the security of DeFi.

Since crypto is a 24-7 game, we also offer hassle-reducing features such as automated liquidity optimization. Instead of having to stay alert (and awake!) when a price comes into a particular range, investors can adopt a strategy that will run itself.

Nor will the DeFi industry stop there. Investment management protocols will increasingly look to offer an ever-greater array of investment alternatives. Investors will also start to see features familiar from traditional finance venues, including options, futures and other assets that help them minimize downside risks.

For someone endlessly fascinated with the power of mathematics, helping to guide a project at the forefront of the liquidity revolution is all I could have desired.

Nishchal Gaba is the lead technologist and chief marketing officer at DefiEdge, a platform for users to manage their liquidity in the decentralized finance ecosystem.