The dAMM Future
Authored by the CEO of dAMM Finance, Joshua
I’ll say it, crypto lending completely sucks these days.
I could be wrong, but I think this is what Butthead was talking about:
The days when Compound and Aave’s permissionless lending were fresh and new are over, and the fact that a treasury bill will earn you over 5x the USDC lending rate proves they’re long gone.
Part 1: Ok, so why does DeFi lending suck now?
There are two reasons DeFi lending doesn’t work at scale:
- It’s the inability to control risk.
2. Lack of consistent innovation
On the first point, crypto lending and borrowing today have two modes only: suffer miserably earning less than nothing on Compound, Aave, Euler, etc., or YOLO it all on centralized platforms like BlockFi, Celsius, Voyager, and Abra, all the while praying their Ex-Goldman Analyst doesn’t accidentally give Su Zhu your ETH!
And on the second point, Compound and Aave have been stagnating. They no longer are innovating on their core product, over-collateralized lending. Aave has moved on to building a social network (named after part of an eyeball? With a flower logo?) and Compound is just optimizing gas and making borrower’s lives miserable by taking away the interest they used to earn on their collateral (We’ll talk more about why they suck at innovating later…).
This binary modality in crypto is why it’s so hard to manage risk. This is why a platform that allows you to understand your risk is necessary for the space; which brings us to the main event….
It’s time to open the dAMM Canals!
Addressing Problem #1
HIGH-RISK HIGH REWARD
dAMM on day one is simply core lending pools for market makers, essentially an on-chain version of existing centralized lenders. The main improvement is that rather than trusting the aforementioned Ex-Goldman Analyst to suss out sketchy borrowers, all counter-party information is on-chain and users can borrow and lend with complete transparency of who exactly they’re lending to and where their assets are being moved. These are inherently higher risk pools based on the under-collateralization of the loans, but offer lenders far higher yields as a result.
LOW YIELD BABAAAY!
Currently, lower yield risk-adjusted strategies are the primary option for real DeFi yield. Hence Compound and Aave are the primary focus of this article (I ain’t NEVAH gonna forget you, Euler!) These yields used to be high when there was real borrower demand in 2020–2021, but just look at the utilization rates on Compound and Aave for God’s sake:
If that’s not the clearest indicator of no retail demand for borrowing assets, I have no clue what is. But wait a second:
I know what you’re thinking, how the hell is the same token on two different platforms being lent at literally 15–30x the lending rates of Compound and Aave?!!?
THE RISK SPECTRUM
Risk is everything, degenerates. In TradFi (no more calling it tardfi on Twitter if they’re dunking on your yields!) they understood this 60 years ago. Over-collateralized lending doesn’t scale outside of pawn shops (google pawning lmeow) but our boys over on Wall St (ever heard of it??) figured it all out.
They realized if they didn’t require much collateral with high trust borrowers, they could provide them LEVERAGE! We all know leverage is a dangerous thing (looking at you 20x leverage users on FTX!) However, professionals know how to wield leverage as a weapon to make dough rather than cut off their own leg (aka most of CT). So what we’re doing is pretty bold here, but we’re betting it’s going to pay off big time if crypto is to scale to actually compete with TradFi.
Part 2: Wait, you make SUSHI how!?!?1?
Addressing Problem #2
Compound and Aave stopped innovating for two reasons:
1. First, they’re the same protocol. Minus some UI differences, flash loans, and some unimportant features (do you know anyone that’s used fixed-rate loans on Aave?); Compound and Aave are practically the same thing.
2. Secondly, they’re both DAOs. DAOs are slow, complicated, and don’t work for things that are essentially companies on a blockchain.
To say a little more about that second point, if you’re still clinging to the idea that DAO’s can scale a decentralized company to the size of say, Apple, Facebook, or even our lovely (allegedly tax-avoiding, ALLEGEDLY!!) friends at MicroStrategy; you’d be completely wrong. Don’t believe me? How about we see how DAO’s functioned before Mr. Satoshi came along and invented the first blockchain:
From the Wikipedia on Athenian Democracy:
“The modern desire to look to Athens for lessons or encouragement for modern thought, government, or society must confront this strange paradox: the people that gave rise to and practiced ancient democracy left us almost nothing but criticism of this form of regime (on a philosophical or theoretical level). And what is more, the actual history of Athens in the period of its democratic government is marked by numerous failures, mistakes, and misdeeds — most infamously, the execution of Socrates — that would seem to discredit the ubiquitous modern idea that democracy leads to good government.[75]”
DAOs have trouble with governance, and I am certainly not the first to say that this millennium. Rather than building a DAO on top of a lending protocol, we’re building a protocol owned by the community but managed by a publically approved team (more on this is in a future article).
So what I’m about to say next might inspire shock and awe, fear on such a grand scale that you may believe someone dosed your coffee with LSD!
We’re going to ReVamp Compound and Aave, boys, and girls.
dAMM is going to allow the staking of any Aave or Compound liquidity pool token and provide an abundance of bonus rewards until October 31st. This is very similar to what’s often called a Vampire attack (I mean come on, Halloween, Vampires, get it?), with the exception being that we’re not planning on migrating the LP tokens afterward into the underlying pools.
All of the tokens we accumulate will be owned by the protocol, with the intention of using COMP and AAVE to increase liquidity mining rewards for stakers on dAMM (that’s why we’re not migrating the underlying assets over).
Think Convex but instead of on top of Curve, on top of AAVE and COMP.
Let’s be clear about some numbers here, folks. On Halloween, we will enable bond unlocks for FREE for 24 hours ONLY (anon, just read the docs…). Additionally, you’ll be able afterward to redeem bonded dAMM with COMP and AAVE governance tokens.
Ladies and Gentleman, this is Captain Oveur speaking, we’ll be sending complimentary liquidity bonds your way. Over Over.
We’re going to be rebasing the APY’s in each pool daily to target
Oct 3–15: 20% APY in all cToken and aToken Pools
Oct 16–31: 15% APY in all cToken and aToken Pools
We’re incredibly excited to get these pools live and hope you’ll come and stake for a while. There may be some really great on-chain goodies for users that stake LP tokens and keep them on after October as well….
As a final note for why you may be interested in holding dAMM after the free redemption day, 10% of all interest payments from borrowers as well will be given to dAMM stakers (a first in DeFi lending, btw).
Our goal is to scale crypto lending onto a single community owned (not managed!) platform that is actually capable of continuous innovation (more on that in our future governance article! It will live up to the hype, I promise.)
And this is the dAMM future. Namely, the future of the dAMM protocol, you could even call it a roadmap! Permissioned pools, as well as the VamPools (Pronounced Vampools? Or Vamp-Pools? You decide in our DISCORD!), are now live!
STAKE YOUR COMP AND AAVE LP TOKENS: https://app.damm.finance/vamppools
LLLLLLLLFFFFFFFFFGGGGGGGGGGGG!!1!1! !1 2 3!!1
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