Cardano Foundation is partnering with the Nervos network in a joint research initiative to secure smart contracts, especially on a blockchain, using the Unspent Transaction Output (UTXOs) transaction model. The research efforts come in handy as Cardano aims to take over the decentralized finance (DeFi) ecosystem following the Goguen testnet.

Cardano, and Nervos, two public chains using the UXTO accounting method on their networks, announced a joint research partnership that will see them share proprietary information and write research papers on open-source accounting models, UXTO-based security, and develop a universal standard of accounting across blockchains.

This initiative is set to enhance and develop better security systems on UXTO-based blockchains to provide more efficient interactions with DeFi applications.

First conceptualized and adopted by Bitcoin (BTC), the UTXO accounting model has grown as the most secure across blockchains. A UTXO accounting model entails recording the number of coins remaining in a specific wallet after executing a transaction while monitoring every transaction continuously. This accounting model provides a more secure network than the account-based model, which is used by smart contract-based blockchains such as Ethereum (ETH) and ERC20 tokens, the statement further reads.

The account-based accounting model offers a less cumbersome network to store transactions as opposed to the UTXO module. Account-based accounting models only focus on the balance of the wallet account, ignoring the individual transactions within the address, opening up a loophole to steal funds while no one is monitoring the wallet. Kevin Wang, co-founder at Nervos said,

“UTXOs are superior to account models in many ways and provide improved security, privacy, and scalability, all of which are critical for DeFi.”

This makes the account-based model susceptible to hacks and external attacks, as seen repeatedly across the DeFi space in 2020. According to a CipherTrace report, the overall value of DeFi hacks in 2020 rose to nearly $100 million as hackers turned their eye to the ballooning space.

Cardano and Nervos are both lining up to nab DeFi projects from Ethereum – both taking a step forward in 2020 to strengthen their market position. Nervos Network announced a collaboration with Huobi exchange to develop blockchain framework testnets on DeFi applications in March this year. Additionally, the network also added Chainlink’s decentralized oracles to enhance smart contract development on the platform.

Cardano recently announced its first-ever DeFi project built on the platform, Bondly, lending and borrowing DeFi app, earlier this week. This followed the launch of “Project Catalyst,” a $250,000 fund aiming at incentivizing DeFi developers to build on Cardano.

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