Lending has and perhaps always will be a staple of DeFi’s offerings. Like any industry, lending has evolved over time, providing users with more optionality than ever when it comes to chains, available assets, utilization parameters, looping, etc.
Recently, Ethena has stirred the pot with it’s synthetic dollar yields, forcing some markets to adjust or accommodate this move. Other key points of contention within the lending space include the use of oracles, the role that governance plays compared to smart contract immutability,
In this edition, we’ll be briefing you on some of the most important projects in this realm; Spark, Ajna Protocol, Inverse Finance, and Ethereum Credit Guild.
Stay alert, stay informed ⬇
Euler
Euler was notoriously exploited for some ~$200M around 1 year ago. The team has been building since 2020 and continued to build past this exploit, gearing up for the protocols V2 which will be expected to launch in the upcoming Q2 2024.
Euler V2 contains a modular, composable lending nature within its platform. The team draws a comparison to AWS for DeFi lending, offering both customizable and prepackaged modules for creating lending protocols. The protocol is also undergoing the start of the largest code audit competition in history on Cantina for $1.2M. When it comes to the complexity of oracles and asset pricing, the Euler V2 approach is agnostic, allowing users to decide on the level of oracle dependency they’re comfortable with, highlighting the trade-off involved in oracle-free solutions.
The V2 contains 3 types of vaults, each designed to meet varied user needs and preferences, thereby enriching choice and flexibility as detailed below;
The euler team sees the significant potential available in LRTs. There are various trading strategies which involve LRTs, among other assets, which Euler can use it’s versatility to help enable.
Inverse Finance
Inverse Finance is a DAO which develops and manages the FiRM fixed-rate lending protocol, DOLA, its debt-backed and decentralized stablecoin, as well as sDOLA, the yield-bearing version of DOLA.
The protocol experience with variable and fixed rates, detailing their pivot to a fixed rate model. This is done through its FiRM mechanism which offers tokenized interest rate rights for specified borrowing durations. The team also advocates for the inevitability of fixed rates in DeFi, given their prevalence and preference in traditional finance, highlighting the deployment of $DOLA liquidity on multiple chains.
Spark
Spark is an $ETH lending and borrowing protocol simplifying users access to $DAI, powered by Maker DAO.
When it comes to oracles and asset pricing, Spark has plans to use redundant oracle feeds when it comes to $ETH - USD price to mitigate tail risks, emphasizing the importance of redundancy in lending protocol’s use of oracle feeds. Spark utilizes the exchange rate from Lido, hardening stETH 1:1 with ETH.
While Spark and Maker are most correlated in users minds with DAI, maker does have plans to implement both USDe and sUSDe pools as collateral for loans. Spark’s focus is on connecting Maker’s liquidity to innovative DeFi products, highlighting the use of DAI to support user-friendly lending experiences. SparkLend has found some success whilst providing predictable for borrowers, facilitated by Maker’s direct lending capabilities.
This highlights a conservative approach with a focus on safety and over-collateralization to leverage high-yield opportunities presented by Ethena, while maintaining a robust margin of safety. Maker has employed a strategy to balance yield generation with safety, detailing the multiple layers of protection designed to safeguard Maker’s protocol and $DAI holders. This includes over-collateralization, insurance funds, and the MKR token as the ultimate backstop, aiming to bridge the revenue gap and provide users with access to high yields through a structured safety mechanism.
Ajna
Ajna is a peer-to-pool, oracleless, permissionless lending protocol with no governance, accepting both fungible and nonfungible tokens as collateral. Ajna takes an agnostic stance to new or novel assets and treats all assets with a consistent approach.
Ajna makes users aware that they can use the protocol to lend against their entire portfolios in a decentralized and interoperable way. Ajna notably requires users to access its services through one of its multiple 3rd party frontends.
The protocol places a focus upon quick adaptability to any asset’s inclusion due to its opinionated model that places the Oracle outside of the protocol. Ajna’s model allows for a lending market without a secondary market or the risk of bad debt.
Ethereum Credit Guild
Ethereum Credit Guild is he first decentralized lending pool — allowing users to lend and borrow without trusting an oracle provider. The protocol takes a middleground approach when it comes to governance, in between purely permsisionless protocols like Ajna, while also not an actively governed protocol like Aave. Ethereum Credit Guild isn novel as it does not require trusted oracles or real-time price feeds, the first of it’s kind. Thep project uses an optimistic governance model which includes delays and quorum thresholds for changes.
When it comes to managing risk, the protocol employs different techniques based on the size of the lending market and the importance of adapting to evolving risks in the DeFi space. For example, the protocols is open to integrating LRTs onto it’s platform but stresses the importance of mitigating smart contract risk. The Guild integrates new assets based on thorough audits; this would still be the case even with the high demand for products related to liquid restaking and derivatives.
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