Collateralized Lending
Borrowing and lending of crypto assets. Crypto providers are able to earn an interest by depositing crypto to a specific pool. Borrowers are able to take out loans by collateralising crypto. By allowing collateralisation and lending across various cryptos, users are able to mix-and-match their current and borrowed assets according to their liquidity preferences.
Principles
A lending contract defines the asset to hold in reserve as well as the share of each borrower/lender. The interests paid to lenders or paid by borrowers is dynamically determined based on a combination of market mechanisms and protocol governance targets. Utilisation and collateralisation ratios can be used to improve capital efficiency.
Benefits
Additional liquidity generated from utilising dormant assets (i.e. leveraging); No need to sell assets to generate yield; Creation of liquidation markets
Protocols
- Aave
- Compound
- Cream
- Salt
Questions
What is the most important question this topic raises that current discourse tends to avoid or understate?
- Which assumption in the standard framing of this topic is most likely to be wrong in a 5-year horizon?
- How does the DePIN or agent-native lens change what matters most about this topic?
- Which first principle, if violated, would make the analysis of this topic fundamentally incorrect?