Rewarding Active Lenders and Borrowers with Airdrops
Increasing user adoption with LEND Airdrops
ETHLend increases the usability of the product by introducing a new mechanism for user adoption. The goal is to reward early adopters with the use of LEND tokens. The previously introduced LEND buybacks and burning is from now on deprecated. Instead, ETHLend will focus on creating value for the users and more value for the product, thus indirectly creating value for the token holders as well. ETHLend will use LEND token Airdrops to increase the user adoption and to add more volume to the loan book. An airdrop means that a certain amount of tokens is distributed to the users of the decentralized application.
Buybacks and burning were previously introduced by ETHLend in order to create more value for the token holders.
However, these models have two drawbacks. First, buying LEND back from the market and permanently removing it from the circulation might decrease the total supply of LEND. This assumption implies that the token would increase in value due to the scarcity. Burning the LEND would not guarantee that the token increases in value. Secondly, pursuing the increase of the token value distracts ETHLend from the real opportunity — the users of the decentralized application.
Creating rewarding mechanisms that aggregate more volume for the decentralized application creates more value for the product and eventually more value for the token holders as well.
When the product and the venture is successful, the token holder’s LEND, which is used on the platform, has more value. Based on the above, instead of burning the tokens, ETHLend will airdrop the tokens to lenders and borrowers who actively use the decentralized application.
The reward sets the motivation to borrowers and lenders to use the returns and to use the application more frequently.
The utility function of the airdropped LEND
ETHLend will use 20% of the application fees (loan request fee and funding fee) to purchase LEND from the market and airdrop these LEND tokens to all the lenders and borrowers on the ETHLend platform. Because these LEND tokens are bought from the marketplace and redistributed to the eco-system, this doesn’t create any inflation. These airdrops will be done either quarterly or monthly based on the complexity of the process in practice and they will be based on the previous period’s volume.
The airdropped LEND can only be used as a collateral on the ETHLend platform and cannot be transferred to another address. The lenders can use the airdropped LEND for different functions on ETHLend, paying featured listing fees or paying prediction market or credit risk assessment bots. The aim is to provide additional collateral value for the borrower, which reduces the amount the borrower needs to provide as collateral.
Certain limitations apply to LEND due to security reasons and efficiency. First, we acknowledge that a free market does not always equal a fair market. There might be attempts to manipulate these airdrops with large volume loans. ETHLend will apply limitations to how much LEND is airdropped to an address. Secondly, the airdropped LEND must be used within 24 months on the platform. Therefore, once the airdrop is made, the borrower or lender must engage in lending within 24 months. Otherwise the LEND will go for redistribution to the next airdrop.
When LEND is used as described above, the model creates more use cases for LEND tokens on the application, since the participants are getting more value by using LEND as a collateral or paying for functions on ETHLend. Eventually, LEND replaces the amount of the collateral that the borrower requires and could eventually lower the collateral based lending interest rates and even create more trust within the reputation based lending system. These changes should switch the focus on the user adoption and provide more value for the product.
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