Today, we are excited to present a deeper dive into DeFiner 2.0. Our newest upgrade will allow the user to not only create the most configurable lending pool, but it is completely permissionless and protects your privacy 100%.
DeFiner 2.0 will introduce:
- Smart Contract Factory which produces lending market on demand
- Configuration Features: To customize risk control & interest model
- Money Market Connection to help aggregate liquidity
- Privacy Function to conduct an internal private balance transfer
In this article, we will be diving into the details of these key features, what drives us to create DeFiner 2.0 and why is DeFiner 2.0 the future of DeFi lending.
1. The Problem with Current DeFi Lending Protocols
The DeFi industry is still on the way to true decentralization. Current DeFi lending protocols serve as gatekeepers, reserving the right to decide which tokens will become part of their pools while leaving many tokens and digital assets unavailable to lend.
As a response, some protocols introduced a DAO governance model to decide which coins will be listed in their pools. However, even with a DAO system, the design is still considered a centralized framework because its power is concentrated within a small handful of people instead of the entire community.
Currently, there are more than 10,000 tokens listed on CoinMarketCap, but there are less than 50 crypto assets supported by current lending protocols today. These platforms are the only protocols available to top market cap tokens because their liquidation mechanisms rely on the oracle price feed model.
Current lending protocols risk management mechanisms are only able to support crypto assets with similar risk levels, preventing them from providing a lending market for low-market cap tokens. This is why most assets do not have their own lending markets, because it makes scalability impossible.
Once this lending problem is solved there are many possibilities, giving tremendous opportunities to low liquidity assets like NFTs, real estate, credit tokens, and more.
2. The Solution — DeFiner 2.0: A Permissionless, Configurable Lending Protocol with Privacy 100% Protected
DeFiner’s next-generation product, DeFiner2.0, successfully solves this lending problem by creating a 100% permissionless lending protocol. In DeFiner 2.0 anyone can create their own lending pool by using any token or digital assets they choose.
Every pool will give someone complete control over it, with highly-customized configurations like risk control, interest rate, and choice of oracle. These customized configurations will help avoid isolation by keeping a reasonable degree of liquidity for each pool in order to improve capital utilization. Each lending pool will be connected to our money market main savings pool — which supports high-liquidity assets like stablecoins, BTC, ETH, and more.
In DeFiner 2.0, we plan to introduce even more applications into our ecosystem over time, including Initial Loan Offerings (ILOs), non-collateralized loans, off-chain asset-backed loans, fixed-rate loans, term loans, and a variety of different offerings based on community feedback.
DeFiner 2.0 represents a near-perfect solution for the current problems facing DeFi lending protocols today and is designed to bring a true form of decentralization to the global DeFi ecosystem.
3.0 How does DeFiner 2.0 Works?
3.1 Smart Contract Factory
As we mentioned earlier, risk management mechanisms used by current DeFi lending protocols can only support coins with similar risk levels. The current DeFi lending protocol design makes it nearly impossible for a lending pool to risk volatile assets against stronger ones, simply because of the liquidation mechanism.
But DeFiner has discovered a solution to this lending dilemma — configuration. We created a new mechanism where anyone can create a separate lending pool with fully customizable parameters based on different token liquidity. DeFiner 2.0 will have a built-in, configurable Smart Contract Factory that offers the user total control over their lending pool.
On the back end, our Smart Contract Factory will generate a smart contract based on the different configurations users can input when creating their own lending pool.
The configuration mechanism can manage the risks better because we are able to separate different risk levels by creating and then separating another pool. Essentially, our Child Debt Market works to isolate the risks from our main savings pool.
And where there are risks, there are rewards. Our method will efficiently reward risk-takers with a higher APR for taking a chance. And to ensure better risk management and returns, DeFiner will allow users to configure three categories: 1. Risk Control Model; 2. Interest Model, and 3. Oracle Model.
Below are some examples of what users can configure under each category.
1.Risks Control Model
Parameters in this category are designed to manage a borrower’s behavior and to prevent loan default. Different markets have different volatility levels, so they should have different LTV (Loan-To-Value), liquidation threshold, and discounted ratios. Below are some parameters that users can configure in DeFiner 2.0.
- Borrow LTV for collateral
- Borrow LTV for lending currency such as USDT, USDC, DAI, and ETH
- Pre-Configured Parameter:
- Liquidation Threshold: 85%
- Liquidation Discount Ratio: 95%
Configurations in the Interest Model are designed to reward the risk-takers and attract lenders to the pool. Users can adjust interest rates based on different tokens’ liquidity and their needs. Parameters like staking APR, lending currency debt APR and even the mining speed are all available for customization to control the interest rate. The higher the risk, the higher the return.
- Staking APR range
- Debt APR range for lending currency
- Deposit Mining Speeds for Each Token
- Borrow Mining Speeds for Each Token
Oracle models are risk control configurations. Not all token prices are available on mainstream Oracles. Based on the different liquidity of each token, DeFiner offers three different Oracle models for users to choose to mitigate risk.
- Chainlink: We use Chainlink as our Oracle for high liquidity tokens.
- Uniswap: We use Uniswap for low and middle-level liquidity tokens as our price source.
DeFiner Oracle: For tokens that are not listed on the market yet, we are using the DeFiner native Oracle as our price source. The price will be reviewed and assessed by DeFiner DAO periodically.
After a Child Debt Market is created, anyone can send a proposal to update the configurations. If the user wants to update anything they can send a request for the updates needed in the configurations.
It’s not unusual for users to run into a situation where their Child Debt Markets configurations might need to be changed. For example, when the underlying collateral liquidity increases dramatically, the pool will tolerate a higher collateral factor. The user can submit a proposal to increase the collateral factor. Such proposals should be reviewed and approved by DeFiner DAO.
3.2 Money Market to Aggregate Liquidity
Even an isolated configurable lending pool makes it possible to resolve the risk and reward issues, while the liquidity of each pool is very limited compared to the standardized money market DeFi protocol.
The lack of liquidation is not up to par for any lenders who want to quickly exit their position. At the same time, the capital utilization may be lower than the standardized pool because it is isolated. Therefore, the child debt market model cannot function well unless the liquidation issue is resolved.
And to solve the isolated debt market liquidity problem, DeFiner 2.0 will implement three approaches:
- Connect to money markets to aggregate unused capital
- Secondary Debt Market for users who want to exit their position early
- Review Terms & Borrow Reserve Factor
A. Connections to Money Markets
DeFiner 1.0 has an aggregator function that connects our savings pool to money markets like Compound. All Child Debt Markets (generated in the Smart Contract Factory) are connected to DeFiner 1.0 (our main savings pool), and other protocols like Compound and AAVE. This will be the cornerstone of DeFiner 2.0.
Connecting all of these child debt markets to money market protocols solves the lack of liquidation issue efficiently. The DeFiner 1.0 main savings pool/money market, combined with other protocols will effectively aggregate all unused capital inside the Child Debt Market. The mechanism is used to improve excessive capital.
We use a pre-configured parameter, the Reserve Ratio, to determine how much funds to allocate in the money market. The minimum Reserve Ratio is 10%, and the maximum Reserve Ratio is 20%.
As an example, let’s say we have $1 million inside the child debt market, $500,000 has been lent out. The Reserve Ratio is 10%, meaning the remaining $500,0000 unused capital will be divided into two portions. $50,000 will be the reserved balance, while the remaining $450,000 will be lent out to the money market.
B. Secondary Debt Market
The second mechanism DeFiner uses to ensure liquidity is through a secondary debt market. Users will have the option to tokenize their debt position and trade it on a secondary market. Users will receive a dToken, a tokenized representation of their debt position. If users want an early exit and there is a lack of lending currency available, the user can swap their dToken in the secondary debt market at a market-driven price.
C. Review Terms & Borrow Reserve Factor
Liquidation is a good way of managing a borrower’s behavior and ensuring they repay the loan and interest. Currently, collateral on DeFiner is open for forced liquidation when LTV>= 85% (Read the liquidation mechanism details here). DeFiner 2.0 introduces a Review Terms mechanism if Loan-To-Value falls below 85%. Liquidation will happen if either one of the following criteria is met. The Review Terms mechanism provides more flexibility.
- Criterion 1: Use the Borrow Reserve Factor (BRF) to control the lending currency reserve to ensure there is always liquidity for lenders to withdraw.
BRF is calculated by lending currency Total Value Locked (TVL) divided by the total value of debt outstanding. BRF should always be between 0 to 10%. If BRF is equal to 0, the liquidation process will be triggered to bring the BRF back to 10%.
- Criterion 2: Use the time frame mechanism to trigger liquidation. Based on the terms, the liquidation process will be triggered periodically. During the configuration process, DeFiner 2.0 provides users with the option of 1-month, 3-month, 6-month, or 12-month terms. At the end of each term, the need for funds in the pool increases. This triggers the BRF requirement to change from 0-10% to 10-30%.
During this period, if the BRF falls below 10%, the liquidation process will be triggered to bring the BRF back to 30%. The process is designed to give users a window to withdraw funds. The window will last for 7 days. After 7 days is up, the BRF requirement will change back to its normal level which is at 0-10%.
Privacy protection is another critical matter in the current DeFi lending ecosystem. All transactions in DeFi are currently 100% public. Even though the user identity of each public address is not easily available, it is not “Mission Impossible” to identify a user and their related addresses through data analysis and mining. With the right know-how anyone can mine data with the identity or location of the wallet address. DeFiner believes that true financial freedom cannot be achieved without users having the option to make traceless transactions.
That’s why DeFiner 2.0 is poised to introduce a new privacy function into our smart contract. This new update will enable users to transfer their balance/s within our contract without disclosing any destination address information. The DeFiner smart contract will act as a black box and break up the on-chain link between deposit source and withdrawal destination addresses, giving users 100% privacy of their account.
Let’s take a look at the process in more detail. When a user deposits into our smart contract from address A, they will have the ability to conduct an encrypted internal transfer from Address A to Address B. This transfer process is encrypted with zero-knowledge proof. When the transfer is initiated, an encryption key, which is only available to the user, will be generated. The key will be required when the user wants to withdraw funds.
There will be no link between the deposit and the withdrawal with this mechanism, helping the user without recording any relational information between the deposit and withdrawal addresses.
4. DeFiner 2.0 Use Case
There are five major functions in DeFiner 2.0:
- Create Markets
- Private Balance Transfers
We will use some real-world examples to walk you through all five of our functions. Let’s say Company A is a blockchain startup, who has just closed a lead investment and has a SAFT (Simple Agreement for Future Token), a token price, and a tokenomics plan.
Create a Debt Market and Run an Initial Loan Offering Campaign
Project A also sets a date for initial public listing. Instead of raising money from investors, they have an option to use the DeFiner Debt Market to help raise funds by borrowing from the community. This saves time and helps them build a robust community around their project from the beginning. With more community exposure there will be better growth for a project. We call this process the Initial Loan Offering (ILO). The ILO is different from an IDO (Initial DEX Offering) in that instead of selling tokens in a pre-sale where only high-value investors get exclusive access to new projects at a discounted rate, the DeFiner community gets first access to new projects launching on our protocol.
Project A will input the loan collateral and the configurations such as Debt APR Range, Staking APR Range, Review Terms, and Collateral Factors. After Project A inputs all the necessary configurations, they must ensure enough collateral tokens in their wallet.
Project A will then approve the spending limit of the token and the lending currency. After Project A supplies collateral, DeFiner’s Contract Factory will generate a smart contract based on the configurations Project A inputted, and then a debt market will be successfully created for the project.
Borrow Against Token
Now that Project A has successfully created the debt market its next mission is to attract lenders. Project A will have to run promotions, provide a detailed fund usage plan, set up an attractive interest and token mining rate, and a default plan to efficiently attract lenders. DeFiner will also help to promote these projects through the DeFiner community.
Once Project A successfully attracts enough lenders, Project A can start borrowing funds anytime they want based on its availability. A borrowing power (factor*collateral value) will be defined. Borrowing power is calculated by factor*collateral value. The borrowed amount should always be less than or equal to the borrowing power which is equal to collateral
Lend to Earn Interest and Token Rewards
Let’s look at the lender's side. Consumer B is the typical consumer, and a member of Company A’s community that wants to buy their token before it's listed. If Customer B finds the terms and by Project A attractive, they can deposit their funds to Project A’s debt market. Once Customer B deposits the funds, they will receive dTokens which will represent their deposit balance position. Customer B’s reward is in two portions: the staking portion which is provided by Project A; and the interest rate portion.
Stake and Earn Rewards
Startup A can run a staking program in their lending market to encourage the community to deposit their token to the lending pool and reward them with interest. Communities have a better chance to turn into long-term holders because they can make passive income from their tokens instead of sitting idly in their wallet. Token holders need to simply deposit the underlying collateral into the lending market and earn passive income. Also, if they need cash in the short term, they can borrow against their token.
Early-stage startup tokens are just one category of debt markets. Because of our unique and permissionless design of the protocol, DeFiner enables limitless use cases for opening and running a lending market for any tokens.
We have identified the following seven personas who would use DeFiner 2.0:
- Early-stage startup token before token listing and trading
- Mid Stage startup token after token listing and trading, but with limited liquidity
- Late-stage startup token, public trading, and with good liquidity
- NFT asset-backed debt market
- Off-chain asset-backed debt market
- Non-collateral loan market
- LP(Liquidity Provider) token or any other tokenized position market
6. Why DeFiner 2.0 is the Future of DeFi Lending
If we look at the history of DeFi, the first generation of the lending protocol is peer-to-peer lending, while the second generation is the savings pools model protocol. DeFiner is poised to lead the DeFi space with our third generation DeFi lending protocol, a true permissionless and configurable protocol with 100% privacy protection. Permissionless will help us achieve true decentralization in the ecosystem, which means zero gatekeepers holding users back. Any digital assets or tokens can start their own lending pool.
Your assets, your ownership. Configurations will help to manage the risk and rewards better for the tokens. Finally, the privacy function will bring an extra layer of protection to the end-users.
Now, what do we mean when we say we protect your privacy 100%? Our revolutionary zero-knowledge proof wallet transfer system, allows you to move funds from an infinite number of wallet addresses without ever revealing your private information or wallet address.
DeFiner 2.0 makes DeFi Lending what it should be.