Lendroid Review: Decentralized Margin Trading Protocol

Original article by EVALUAPE

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A. Introduction

Lendroid is a decentralized margin trading protocol on Ethereum blockchain. An important goal of the protocol is to nurture a margin trading platform with a decentralized and shared lending pool. It consists of four parties: the lender, the relayer, the margin trader and the wrangler.

B. Industry

This project focuses on the margin trading market of digital currency. As an inherent trading model of traditional financial industry, margin trading will \ develop naturally as a result of the growth and maturity of the digital currency market. There is huge market space for the margin trading market of digital currency in the future.

In the leveraged trading mode of centralized exchanges like Bitfinex, the lender and the margin trader propose the bid and quote towards the interest of the margin, and then accordingly, centralized exchange will match the lender and the margin trader and establishes a contract for the two parties. At the same time, in addition to the role of a centralized relayer, the exchange also acts as a wrangler. Once the margin account is in shortage of funds, the exchange will enforce the transaction into liquidation.

In this process, the exchange serves both as a relayer and a wrangler. The advantage is that for the seller, the security of assets is improved with the exchange enforcing the liquidation. However, it also comes with the following disadvantages: 1) The trust risk brought by the dual duties of the exchange; 2) The security problem of the deposit funds in a centralized exchange; 3) The trading bid and quote of a centralized exchange may cause black swan events which lead to a serial market collapse (eg OKEX leverage event). While the advantages of decentralization are: 1) It can bring a global lending pool to improve the matching rate; 2) It can introduce the bids and quotes of different transactions to reduce the risk of a single exchange; 3) The on-chain custody can secure the security of funds in the accounts; 4) The automatic execution of smart contracts can improve the security of liquidation. In the future, with the development of decentralized exchanges, the traditional centralized entities will no longer play the role of matching and regulating, so it is necessary to develop a decentralized margin trading protocol. At present, there are not many peer products on the market. B0x, for example, is also a decentralized margin lending protocol with a similar mode. But B0x started later, and both its whitepaper completeness and community popularity are not as good as those of Lendroid.

Margin trading is an important part of the traditional market. In the digital currency market, the scale of margin trading is also growing at a high rate. At the same time, although centralized exchanges have certain advantages by playing the dual role of relayer and wrangler, there are still concerns about trust. It is also somehow necessary to develop the decentralized margin trading system in the future DEXes. (8/10)

C. Mode

Lendroid consists of four parties. In addition to the traditional lenders and margin traders, there are relayers and wranglers, separated from the traditional centralized exchanges. The four parties have formed a decentralized margin trading protocol. Users with leveraged trading experience such as futures should be able to understand the trading process of the project, which can be divided into three parts: 1) lending match; 2) trading; 3) liquidation (risk control).

No matter from the perspective of demand-satisfaction in leveraged trading, or the risk control for liquidity, the development of decentralized margin trading protocol should lag behind the decentralized trading protocol. Lendroid reasonably deconstructed the roles in the decentralized mode. The shared lending pool and the auction design in the process of liquidation are innovative, and the non-rent-seeking design in the token economic model also shows decentralized characteristics.

Besides, there are many points to be improved in the decentralization mode of the project, such as the reputation mechanism of the two service providers, the token collateral and punishment mechanism etc. In addition, the risk control measures in the whitepaper does not include the “black swan event”. Therefore, it’s not very convincing.

Token economy: Tokens function as incentives that will be paid by the demand side (the lender and the margin trader) for service providers (the relayer and the wrangler). The project mentioned that tokens may have functions of community governance in the future, such as the adoption of the DAO protocol that can determine what kinds of coins are not suitable for collateral. But there are no specific details so far. (6.5/10)

D. Technology

The overall architecture of Lendroid is not elaborated separately in the whitepaper. However, from the comprehensive information disclosed, due to efficiency requirements, the project’s margin trading propagation are handled off-chain, while the transactions are carried out on the chain. Transactions need to be connected to protocols for trading token, for example, 0x. In addition, when a wrangler verifies the capital security line, an Oracle function is commissioned to obtain data. In terms of smart contracts, the lending contracts and liquidations & auctions of the margin accounts are written as smart contracts with standardized parameters. The consensus mechanism is not mentioned. Open source codes are available on Github: https://github.com/lendroidproject. There are already many repositories. (6.5/10)

E. Ecosystem

Telegram: 5,757 members; Twitter: 9,610 followers. Recently, the community of Lendroid is not so active, and the administrator also fails to give prompt response. In spite of its current user base, as a decentralized protocol, it is necessary for Lendroid to cooperate with other decentralized exchanges and wallets, in order to achieve further user growth. (6/10)

F. Team

Vignesh Sundaresan: Founder of Lendroid, holds a Master’s degree in Engineering from Canada’s Carleton University. He founded a blockchain company BitAccess in 2013, a Canadian Bitcoin ATM company with more than 6,000 ATMs in Canada. He has 3 years of research and development experience in Bitcoin and 1.5 years of Ethereum R&D experience. He is claimed to have developed an Ethereum-based financial project, but the website his project has already shut down.

Vii Sundaram: Technical Director, holds a Master’s degress in Communication Science from the Royal Institute of Technology in Sweden. He previously founded an app software company, but lacks successful cases in his personal profile.

Galen Danziger: Engineer, holds his Ph.D. in Applied Physics from the University of California.

Overall, although the team shows a stronger technical background, most of the members are professionals in software development except the founder with former experience in the blockchain industry. Even so, the founder’s previous company focused on Bitcoin ATM, which generally has nothing to do with the current project. There are few market developers in the team, which is understandable as the technology has not yet matured. However, given that the Lendroid protocol relies on the trading market, the team has to seek for more talents in marketing and promotion before the implementation of the project. The advisors are yet to be disclosed. (6/10)

G. Conclusion

The margin market, as an important section of the financial market, has great potential. The future development scale is promising and decentralization can indeed solve the pain points in the industry. But the current development is subject to the maturity of the decentralized trading protocol. Lendroid has perfectly interpreted its roles in the decentralized mode with some innovative design, but it still has to perfect the interests allocation between borrowers and lenders as well as the risk control mechanism. Although the founder of Lendroid has entrepreneurial background in the blockchain industry, as a whole, the team does not stand out from other margin-related projects. As a decentralized protocol, a wider range of partners is needed for the development of its ecosystem.

Hype Score:Medium

Risk Score:Medium High

Expectation: Medium

Total Score: 6.5

All information in this article is provided for reference only and does not constitute investment advice.

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