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Sept. 22, 2022: Lender's Game 💳🦈
curve.substack.com

Sept. 22, 2022: Lender's Game 💳🦈

How On-Chain Lending Protocols Thrive + Vendor Finance Deep Dive

crv.mktcap.eth
Sep 22, 2022
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Sept. 22, 2022: Lender's Game 💳🦈
curve.substack.com

As human reverse technical indicator Jim Cramer is fond of saying, “There’s always a bull market somewhere.”

In a 🚮🔥 down-only market, where’s the bull? Naturally, it’s good, old fashioned debt.

crv.mktcap.eth is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Twitter avatar for @AutismCapital
Autism Capital 🧩 @AutismCapital
Gm 👋🏼
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5:07 PM ∙ Sep 21, 2022
201Likes22Retweets

Debt is useful not just to buy a box of Twinkies… thanks to the magic of Web3 we can even lend our JPEGs to ape into doggy ponzi schemes.

Twitter avatar for @0xngmi
0xngmi (couch arc) @0xngmi
if you are an nft project that wants to offer lending services to your holders, DM me imo lots of benefits to gain, and we'll offer it for everyone, no matter how small
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6:09 PM ∙ Sep 19, 2022
50Likes7Retweets

Cryptocurrency lending is particularly interesting. In TradFi, lenders can undercollateralize loans because there’s such a thing as “reputation” in real life. Lenders can do things like threaten credit scores, drag people through the court system, or send goons to break your kneecaps.

In DeFi, we don’t have a reputation to borrow against, because we can burn goodwill and hop to new wallets with ease. Unless somebody successfully creates a digital reputation to borrow against, loans have to be over-collateralized.

That said, we’re still seeing lending protocols thriving. Devs are innovating rapidly on the formula, particularly finding new ways to improve the experience for borrowers. We’ve observed two popular strategies recently: 0% interest and 0 liquidations. In this article we’re reviewing these strategies, along with a profile of the recently launched Vendor Finance.

0% Interest Loans

It’s not difficult to see why a 0% interest loan would be appealing. If you take out a loan at x%, you have to earn >x% yield on whatever you receive or you’re losing money (to say nothing of price fluctuations among these assets).

Problem is, there’s no surefire way to earn yield on the token you borrowed. DeFi is a risky game. Lower risk dollar yields are worse than US treasury bonds these days. High yield is risky. Pressure’s on to beat the compounding interest on your loan.

A 0% interest rate removes these concerns. You may still have to worry about changes in the underlying asset price, but at least compound interest isn’t working against you. This could give you some time to repay the loan when conditions are more favorable.

True risk-seekers can also use a 0% interest rate for leverage. Use your loan to buy more collateral and keep upping the collateral to whatever degree you feel comfortable. It’s certainly not recommended for beginners of course, but popular among degens nonetheless. (NOTE: Certainly not financial advice)

Liquity proudly offers 0% interest, on the backs of which they’ve built the textbook example of a well decentralized stablecoin. Lending ETH and minting LUSD carries no interest on the loan, which is helpful for borrowers. Instead of interest, the protocol makes money through a dynamic borrowing and redemption fee, which adjusts according to market demand.

Borrowers do need to worry about liquidations, which often comes to bite those who take advantage of the low required collateral rate (110%) to lever up. Unsurprisingly, the market cap of Liquity tends to track the price of ETH, but otherwise Liquity’s mechanics have proven very resilient through multiple market swings.

Given their track record, definitely pay attention to their new Chicken Bonds.

Twitter avatar for @LiquityProtocol
Liquity @LiquityProtocol
Why did we build Chicken Bonds? If you know anything about Liquity, we strive on innovating with maximum efficiency & utmost resilience. We noticed that there had to be a way to capture protocol owned liquidity efficiently and sustainably. Enter @ChickenBonds
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5:13 PM ∙ Sep 21, 2022
38Likes10Retweets

Qi DAO also offers borrowing at 0% interest to mint their Mai dollar pegged token. Similar to Liquity, they charge a repayment fee, in this case a flat 0.5%.

Qi has honed this formula on multiple sidechains, and their move to mainnet is worth looking into for yield farmers.

Twitter avatar for @QiDaoProtocol
Qi Dao @QiDaoProtocol
🚜And just like that $MAI Farming on @ethereum has begun! ⚡️Create a vault on app.mai.finance/vaults/create ⚡️Mint $MAI at 0% interest ⚡️Provide liquidity on @Balancer to the $MAI - $USDC pool 🍭Enjoy the sweet stable yield app.balancer.fi/#/pool/0xf3aeb…
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1:06 AM ∙ Sep 22, 2022
44Likes10Retweets

No Liquidations

The concept of no liquidation loans is also extremely popular. Thanks to the famous volatility of crypto, liquidations are a rough user experience issue for borrowers — an instantaneous wick downward in prices can trigger the hated liquidations.

This was particularly a problem back in the day when ETH was expensive. Even if you had more collateral available, good luck supplying it as gas spikes to 5000 gwei. Instead you find yourself a liquidated deadbeat… not worth the headache for everybody.

Alchemix popularized the concept of no liquidation, self-repaying loans. You give them money, the money is locked and earns yield that goes towards paying the loan off. This is a friendly and passive borrowing option, particularly for users that don’t care to actively manage their positions.

Aladdin DAO’s CLever extended the Alchemix formula to complement Convex yields. No liquidations! CLever manages auto-compounding yields! We reviewed their operation in more depth in our prior writeup, but here’s a quick refresher:

Twitter avatar for @DeFi_Dad
DeFi Dad ⟠ defidad.eth 🦇🔊🐼 @DeFi_Dad
🫡 If you enjoyed the automation of @0xconcentrator, the same team in @aladdindao launched another complementary product for the @ConvexFinance community with @0xC_Lever. 🧠 Deposit CVX to borrow a non-liquidatable, self-repaying loan.
Image
Twitter avatar for @Subli_Defi
Subli 🦋⚔️🔴👻🚴 (💙,🧡) @Subli_Defi
2/13 @0xC_Lever allows user to take a self repaying loan without the risk of being liquidated. Deposit $CVX as Collateral, Borrow $clevCVX as debt, swap it for more $CVX. Rince & Repeat for a 2x leverage effect. You can also repay your debt at anytime.
12:11 PM ∙ Sep 13, 2022
36Likes8Retweets

Despite the challenges of launching into a bear market, CLever has thrived in terms of its goal of accumulating Convex tokens.

Twitter avatar for @0xC_Lever
0xCLever @0xC_Lever
Bear market or not, CLever numbers go only 🆙 - 12 Jul 👉 𝟲𝟬𝟳𝟬𝟵𝟰 $CVX 🔒 - 26 Jul 👉 𝟳𝟯𝟭𝟭𝟯𝟰 $CVX 🔒 - 08 Aug 👉 𝟳𝟱𝟬𝟲𝟲𝟰 $CVX 🔒 - 23 Aug 👉 𝟳𝟱𝟲𝟮𝟬𝟲 $CVX 🔒 - 09 Sep 👉 𝟳𝟳𝟯𝟰𝟯𝟳 $CVX 🔒 - 20 Sep 👉 𝟳𝟵𝟭𝟵𝟲𝟵 $CVX 🔒 - 22 Sep 👉 𝟴𝟬𝟬𝟳𝟭𝟭 $CVX 🔒
It Just Keeps Going Up Sam Johnson GIF
10:47 AM ∙ Sep 22, 2022
3Likes1Retweet

They’re also continuing to grow their product, expanding into Frax.

Twitter avatar for @0xC_Lever
0xCLever @0xC_Lever
Are you farming stables, anon? You should be! CLever has something very juicy for stablecoin farmers in the pipeline, and since we only build on the best ecosystems, we've joined forces with the stablechads at @fraxfinance to make it happen!
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3:34 PM ∙ Sep 8, 2022
67Likes18Retweets

Clever is also releasing a $CLEV token soon, if you’re into airdrops.

Twitter avatar for @0xC_Lever
0xCLever @0xC_Lever
Check out all the details in our CLEV offering article. Ask questions in the Discord. Dig as deep as you want! 🕵️🕵️🕵️ We think you'll like what you find. medium.com/@0xC_Lever/a-c…
medium.comA CLever Token OfferingWith all the excitement surrounding Concentrator’s ongoing IFO you could be forgiven for thinking that CLever is taking a backseat at…
6:41 PM ∙ Aug 22, 2022
3Likes2Retweets

Lendflare is another protocol with an interesting spin on this. They also offer friendly terms for borrowers: fixed rate, fixed terms, and no liquidations against select Curve LP positions.

They manage this by having all loans occur among like kind assets — ie lend 3pool to borrow USDC, so little risk of price fluctuation. Their vaults are mostly utilized. They had the challenge of launching into the bear market, so we’re pleased to see they’re continuing apace and recently released their v2.

Twitter avatar for @LendFlareOffic
LendFlare.Finance @LendFlareOffic
🔥 Lend Flare v2 is now live 🔥 Up to 400% APY boost on Curve LP Major Update 1. @ConvexFinance rewards auto-compounding 2. Auto-borrowing and leveraging against @CurveFinance LP. Docs: en-docs.lendflare.finance/lend-flare-v2/… Second Audit: en-docs.lendflare.finance/others/audit-r… 🧵
en-docs.lendflare.financeAudit Reports - Lend Flare
1:42 PM ∙ Jun 9, 2022
44Likes12Retweets

Vendor Finance

Vendor Finance launched its open beta earlier this month onto Arbitrum, the DeFi playground. The protocol heavily touts its “non-liquidatable, fixed-rate, perpetual loans.”

Twitter avatar for @NakamotoThe3rd
The Great Thread @NakamotoThe3rd
@VendorFi We all love lending/borrowing, but liquidation risk is scary! Vendor solves this * Money market with NO LIQUIDATIONS * FIXED interest * FIXED loan terms * Lender sets the terms * Allows for private pools (whitelisted only) * No token yet
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2:34 PM ∙ Sep 5, 2022
2Likes1Retweet

Distinct from the previously highlighted protocols, Vendor accomplishes their “no liquidation loans” by requiring the lender set fixed lending terms up front.

Twitter avatar for @VendorFi
Vendor Finance @VendorFi
Remember! Borrowers will never be liquidated due to sudden volatility or price fluctuation!
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1:25 PM ∙ Sep 13, 2022
19Likes1Retweet
Twitter avatar for @YettyWapp
YettyWapp 🦇🔊 @YettyWapp
Borrowers are not being liquidated and are safe, even when their collateral price is lower in value than their loan value, which is by design. Borrower protection enabled ✅ https://t.co/ni0P5NMlhC
Twitter avatar for @VendorFi
Vendor Finance @VendorFi
Notice those red boxes? LTV is above 100%! Normally a borrower would be liquidated at this level on traditional platforms such as AAVE or Compound! — Nope, not on Vendor! Borrowers are currently being protected from liquidations due to price volatility! — https://t.co/yA39J0lft0
12:26 AM ∙ Sep 22, 2022
8Likes1Retweet

All loans on Vendor are created with a fixed end date and a fixed (or decaying) interest rate. Lenders set the terms, and borrowers borrow directly from lenders.

Naturally, Vendor Finance still has a concept of defaults in their system. Whereas a liquidation can wreck you due to random price movements, in Vendor you can only get rekt by not fulfilling the terms you agree to up front. If the borrower doesn’t repay by the due date, they forfeit the collateral. Price fluctuations don’t enter into this equation.

Per Vendor’s highly readable documentation…

Borrowers also have the option to rollover their loan as they approach the due date.

If this slightly shifts the risk profile to the lender, this can be mitigated by the flexibility the lender has in setting the terms.

Twitter avatar for @crypto_condom
CryptoCondom @crypto_condom
Have you ever wanted to be a loan 🦈? @VendorFi is an interesting new protocol on #Arbitrum which allows you to "be the bank" by creating permissionless lending pools where YOU set the amount to lend, the APR, & the time frame of the loan. 👇🧵
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2:28 PM ∙ Sep 6, 2022
68Likes9Retweets

Anybody can permisionlessly launch pools for any whitelisted asset, which includes the usual assets ($WETH, $WBTC, major stables) along with others like $CRV, $FRAX, $UMAMI.

Twitter avatar for @VendorFi
Vendor Finance @VendorFi
1/2 It looks like @AaveAave has paused the borrowing of $ETH. — Luckily, if you would like to lend out some $ETH you can do so on Vendor Finance! As a lender, you set all of your own terms! Just create a pool and choose $ETH as the lend token! —
docs.vendor.financeLend - Vendor FinanceLending made simple!
11:55 AM ∙ Sep 7, 2022
17Likes2Retweets

The protocol therefore opens up new potential use cases for lenders, such as DAOs to create strategies to monetize their treasuries:

Twitter avatar for @VendorFi
Vendor Finance @VendorFi
DAOs can use Vendor as a treasury tool to lend out any assets from their treasury while intaking any collateral they desire! DAOs looking to put idle assets to work while providing your token holders utility, please feel free to reach out to us!
Twitter avatar for @0xWenMoon
0xWenMoon 🫡 @0xWenMoon
Any DAO with an RFV floor they want to protect faces a fundamental problem. Let redemption arbers drain treasury or do buybacks which can be frontrun. There is a third option w/ @VendorFi. Lend to your community below RFV, to act as an interest-bearing limit order 🤯👇 1/🧵
4:02 PM ∙ Sep 7, 2022
11Likes4Retweets

Further ideas from the community…

Twitter avatar for @crypto_condom
CryptoCondom @crypto_condom
Ex: If I am bullish on $UMAMI, I can create a 50% LTV pool offering $10k $USDC in exchange for $20k worth of $UMAMI tokens. If the borrower cannot repay, I get cheap $UMAMI. Notably, this plan can backfire if the value of your asset declines more than the value of the loan. 👇
Image
2:28 PM ∙ Sep 6, 2022
Twitter avatar for @0xWenMoon
0xWenMoon 🫡 @0xWenMoon
Any DAO with an RFV floor they want to protect faces a fundamental problem. Let redemption arbers drain treasury or do buybacks which can be frontrun. There is a third option w/ @VendorFi. Lend to your community below RFV, to act as an interest-bearing limit order 🤯👇 1/🧵
3:51 PM ∙ Sep 7, 2022
29Likes11Retweets

Fees are Vendor gets 3% of defaulted collateral and 10% of interest. No token yet…

Twitter avatar for @xpnp404
xcPNP 🦇🔊 @xpnp404
(15/18) 7. @VendorFi 🍸 Be a Bank, users can lend their asset to anther users to borrow without liquidation risk. Sleep tight 💤 At the time of writing, there is no token as incentive because team mentioned they would like to make their product great first.
Image
12:10 PM ∙ Sep 6, 2022
10Likes2Retweets

For a deeper dive into lending, we recommend the book Debt: The First 5000 Years. It paints a picture of our entire social and economic structure in terms of debtor relationships between borrowers and lenders. It’s a lengthy but captivating read that may well last you through the bear.


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crv.mktcap.eth is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

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Sept. 22, 2022: Lender's Game 💳🦈
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