Decentralized Finance (DeFi) is becoming well-known these days and starting to be recognized as the future of the financial industry. This will lead to a future where the finance system is more open and can reach a more significant number of users.
The lending mechanism is one of the most crucial aspects of DeFi. In the DeFi Lending mechanism, the transactions are operated immediately; digital collaterals are allowed, and there is no need for credit checking with transparency and immutability. The borrowing and lending interest are usually determined by a preset algorithm.
However, this mechanism possesses a problem: Its ability for market adaptation is still limited, especially in a market with high fluctuation and is constantly changing on an hourly basis. This has demanded traditional lending protocols to persistently reanalyze their statistics to adapt to the market's instability.
In the current situation, the need for a decentralized Lending mechanism that can quickly adapt to market fluctuations is rising day by day.
To solve this problem, currently there are 2 solutions that most applications in blockchain apply.
Solution 1: The system alterations will be updated continuously by a group of people, or organization
With this solution, the statistics can be changed easily and quickly. Still, the decentralized aspect (the most crucial feature of blockchains, which aims at the goal of independence from a third party) will be neglected because the decisions are laid in the hands of a group of people.
Solution 2: Many projects have been developed based on the management system with the DAO model (Decentralized Autonomous Organization).
Unlike traditional operations with a small group of people or executives to make final decisions, DAO operates without the intermediary. All decisions will be based on the vote of the system's users.
With this solution, the protocol will achieve the decentralized aspect. Still, the process is quite long since the voting process might take up to 1 to 3 weeks or even longer accomplish the results.
Automated Governance was created to solve the above problems. Simply put, it is decentralized and can quickly adapt to different market situations.
For starters, Orchai’s Automated Governance is decentralized in the sense that users will be allowed to vote for the most competent AI model from a list to function as an automated system manager.
After the nomination through DAO, the AI-enabled Automated Governance protocol collects and updates market information to evaluate, then predict risks and unfavorable financial events. After that, the protocol automatically responds with the best decision based on available statistics, thus lowering the possibility of catastrophic events like massive slippage or security breach.
If the systematic changes are insignificant, the AI will apply the alterations to the protocol to quickly adapt to the market situation. And if the changes are consequential, the AI will automatically propose for users to vote, and then the voted solutions will be applied in the system. To enable this, the community will be involved in gauging the importance and priority of variables and possible changes through periodic DAO proposals.
With Automated Governance, users can easily make voting decisions by reviewing the dashboards that are automatically developed and shared with the community.
Moreover, Automated Governance also functions as a defense mechanism for a DeFi contract because it provides an on-chain risk monitoring system. When there are changes, Automated Governance is able to adjust and upgrade models based on the collected data, guaranteeing that predictions and recommendations are as accurate as possible. With Automated Governance in the Orchai protocol, users can trust and know that their assets are safely monitored even in the shakiest situation.
Orchai is the pioneer of applying Automated Governance in the DeFi Lending protocol. The unique feature of the Automated Governance in Orchai protocol is AI-powered. With Automated Governance, Orchai becomes the world's first AI Lending Platform that can quickly adapt to the market and be decentralized simultaneously.