【Dapp Pocket】DeFi Weekly Report - Week 2 of August: Decentralized Finance Also Offers Credit?

2020/8/12

Dear DeFi enthusiasts,

This week has been full of news from major DeFi platforms, with Set Protocol teasing the arrival of V2, Compound launching an open price feed tool, Uniswap completing a $11 million Series A financing round, Aave successfully lending its first credit delegation to DevesiFi, the controversy surrounding the retirement of YFI's founder, and the launch of the new BlackHoleSwap Alpha version by Taiwan's Hakka Finance.

Our Perspective: Let's talk about Aave's credit delegation mechanism, how it works, and what impact it might have on the DeFi ecosystem.

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This week, industry leaders have shared their views: Anthony from Set believes we may rely too much on Etherscan; Kain from Synthetix sees the continual emergence of DeFi protocols as a positive cycle that will persist in the short term; and Leshner from Compound reminds users that "Y" products come with significant risks.

Table of Contents

1. Our View | How will Aave's new mechanism - "Credit Delegation" improve DeFi's capital efficiency?

One major issue in the DeFi space has been the low capital efficiency caused by a large amount of liquidity being locked in lending platforms due to the need for over-collateralization to borrow. In response to this, Aave's new economic model, Aavenomics, introduces a new borrowing model: borrowing idle credit from others to achieve uncollateralized loans.

Credit Delegation Example

Here is a recent example: Karen, a user with deposits in Aave, had enough deposits to borrow but chose not to, leaving her credit value idle. On the other hand, DeversiFi needed liquidity but did not want to provide over-collateralization. Therefore, Karen and DeversiFi signed a legal contract through OpenLaw, where Karen agreed to lend to DeversiFi through Aave's Credit Delegation (CD) mechanism at an annual interest rate of 8%. Subsequently, OpenLaw opened a Credit Delegation Vault (CDV smart contract) on the Aave platform, where Karen set the borrowing interest and provided funds (USDC) for DeversiFi's over-collateralization, allowing DeversiFi to borrow 20 wBTC from the CDV.

For Karen, this means she can earn higher loan interest (original 5% + DeversiFi's 8% - stability fee 3% = about 10%); for DeversiFi, it means achieving the first uncollateralized borrowing in DeFi with just paying interest and saving a lot of hassle through Aave; and for Aave and the entire DeFi ecosystem, this brings more idle liquidity back into the market, significantly increasing capital efficiency. It's a win-win-win transaction.

Default Risk

However, despite legal contracts, the borrower still bears the credit risk of the funding party. If DeversiFi defaults and does not repay, which is a default, Karen's deposits will not be recoverable, and pursuing legal action due to the early stage of this development can be challenging. This is why Aave mentioned that the initial Credit Delegation mechanism mainly focuses on lending among acquaintances.

Conclusion

Therefore, to achieve the vision of expanding DeFi's capital efficiency through the Credit Delegation mechanism, Aave (or OpenLaw) should intervene to help Karen recover her assets and debt in case of borrower default. This will encourage more Aave depositors to delegate their credit to others. If major platforms can lend idle funds through similar models in the future, it may bring unprecedented multiplier effects to DeFi, significantly accelerating the development of the entire ecosystem.

2. This Week's Highlights

YFI Inventor Exiting DeFi Space?! Andre Cronje Responds to Interview: I Shouldn't Have Accepted the Interview Before Bedtime

yearn.finance YFI went from a three-digit coin price in the early circulation period to a four-digit price in less than a month, reaching $4,000, fueling high FOMO sentiments for YFI. Its creator Andre Cronje has also been highly discussed recently. AC recently gave an interview to Decrypt, revealing that he was feeling tired and disinterested, almost wanting to exit the space. However, he later tweeted that he was interviewed before bedtime and in an angry state, so the interview may have been more emotional than factual, and he stated that he will continue.

Set Protocol Plans to Launch Set V2, Supporting Multi-Assets and Liquidity Mining

Decentralized asset management protocol Set Protocol announced the upcoming launch of Set V2, focusing on providing tools for users, traders, liquidity providers, and developers. For users, it includes support for multiple assets like DeFi tokens, stablecoins, synthetic assets, etc. It supports liquidity mining while saving gas fees. For managers and developers, it will add portfolio setup, more flexible trading execution tools, enhanced protocol integration, and other features.

Aave Issues First "Credit Delegation Loan" to Decentralized Exchange DeversiFi

Decentralized lending protocol Aave announced the issuance of a credit delegation loan to decentralized exchange DeversiFi. The "Credit Delegation" (CD) service allows Aave depositors to delegate their credit limit, enabling users to borrow without collateral.

Compound Launches Open Price Feed, Integrating Coinbase and Uniswap Price Data

Decentralized lending protocol Compound announced the launch of the Open Price Feed tool on its website, with all price source data recorded on-chain. The system has been running on the testnet for about 10 days and on the mainnet for around 1 week. OpenZeppelin audited the system, especially the part integrated with Uniswap. Currently, the tool's data sources are Coinbase Pro and Uniswap.

BlackHoleSwap Releases Alpha Test Version, Enabling DAI and USDC Swaps

Decentralized stablecoin AMM BlackHoleSwap, launched by Hakka Finance, released its Alpha test version, currently open for user testing. It currently supports swapping between DAI and USDC stablecoins, with plans to add more stablecoins in the future. Note: BlackHoleSwap uses reserve currency deposited in lending platforms. When one currency's inventory is depleted in a trading pair and there is still demand, BlackHoleSwap uses another currency as collateral to borrow the demanded currency from the lending platform to complete the trade, offering low slippage, near-infinite liquidity, and maximized capital utilization.

Others include:

3. Data Indicators

This week's data is from 8/4 to 8/10, with a price capture time principle of 5:30 PM. TVL refers to Total Value Locked, indicating how much value is locked in that platform. Data source: DeFi Pulse, CoinMarketCap.

Lending Platform Scale

DEX Scale

DeFi Coin Prices (Farmer's Zone)

4. Leaders' Perspectives

Anthony Sassano: Are We Too Dependent on Etherscan?

Anthony Sassano of Set Protocol shared an article in a recent tweet. The article questions our heavy reliance on Etherscan and whether it goes against the decentralized ethos. Should there be more options to view Ethereum information?

Kain Warwick: DeFi's High-Yield Cycle Will Continue, But No One Can Predict How Long

Synthetix founder Kain Warwick shared his views on why DeFi is able to offer such high yields. He mentioned that high risk is just a lazy answer, and there are many factors like information asymmetry, rapid product launches, new inflow of funds, etc. Unless we have an optimized liquidity mining option, this phenomenon will not change, and that is very difficult.

Robert Leshner: "Y" Products Are Very Complex and Dangerous, Users Should Be Careful

Compound founder Robert Leshner shared his views on the recent popular yearn products and their derivatives on his Twitter. He believes they are intentionally designed to be very complex and create very dangerous opportunities where users' funds could be taken in an entirely new way.

5. Memes of the Week

DEFI MARKET APPLICATION