Transparent Fixed-Rate Loans for Greater Capital Efficiency and Decentralization
Introduction:
Lendvest is on a mission to revolutionize DeFi lending protocols by delivering transparent and verifiable fixed-rate loans. This approach not only increases capital efficiency but also strengthens the foundational pillars of decentralization, empowering users with clarity and control over their finances. See how Lendvest aims to improve the decentralization and capital efficiency of DeFi lending with next generation fixed rate loans!
Bootstrapping Liquidity from Capital Inefficiency
DeFi Lending Inefficiency
In the DeFi sector, particularly within Aave, there is a notable inefficiency: with $11.04 billion supplied and only $5.42 billion borrowed, there’s an untapped potential of $5.62 billion. Factoring in the estimated average LTV of 75%, this represents a liquidity inefficiency of $4.2 billion, as sourced from DeFi Llama on March 6, 2024.
Better Rates for Both Sides of the Market
Our approach to reduce the gap created by excess deposits is straightforward:
Lower Rates for Borrowers
By offering the lowest possible borrowing rates, we attract a larger pool of borrowers. This strategy is designed to convert the existing inefficiency into active, productive capital.
Higher Rates for Lenders
Simultaneously, we provide higher returns for lenders compared to current market standards. This not only incentivizes the supply of liquidity but also increases the interest revenue for these contributors.
This strategy, designed to incentivize both sides of the market, addresses scenarios where lenders cannot engage in peer-to-peer matching on Morpho, resulting in their capital being transferred back to Aave. Lendvest’s adaptive rate at 1.2%, based on the average of Aave’s 0.7% and Morpho’s 2.7% ensures that Aave’s capital efficiency will be improved before borrowers are willing to pay a higher rate on Morpho. This ensures the best possible rates for borrowers, incentivizes longer borrowing periods, and increases platform use, effectively capitalizing on Aave’s existing $4.2 billion inefficiency.
Architecture and Process
Historical data is stored in a data structure called mappings. In Solidity, mappings are internal by default, meaning on-chain applications and smart contracts cannot access the historical data. However, nodes need to have all data to reach consensus on the state of EVM-based blockchains. Since the data is present in the node (as it’s available on Etherscan), Space and Time is able to have a group of nodes reach consensus on a chunk of data. The data forms a commitment that is used as the basis for data integrity.
Then, to extract insights, such as the average rate between Morpho and Aave, SQL is used and Space and Time’s Proof of SQL appends a mathematical proof for each SQL operation. As the average rate (output) leaves Space and Time’s data warehouse, output of the proof, the result, is verified by Chainlink Function’s Decentralized Oracle Network (DON). Finally, the average rate is delivered on-chain to Lendvest’s smart contract which can be referenced as an interest rate model by DeFi lending platforms that have an open IRM such as Morpho Blue.
Decentralization
When Aave calculates the rate at which money is borrowed, its parameters (or factors) are known, but the weightings of these factors are unknown because the rate is calculated off-chain and delivered using an oracle. Therefore, lenders and borrowers are not able to verify how the rate is calculated nor understand the reasons behind the rates they are paying. This lack of transparency raises concerns about decentralization and the ability of participants to validate and trust the interest rates applied to their transactions.
To improve the transparency of DeFi lending Lendvest is open sourcing the SQL used to calculate its weightings which includes the parameters used and the weightings of these parameters.
Conclusion
In summary, by addressing Aave’s $4.2 billion capital inefficiency with adaptive fixed rate loans, Lendvest aims to boost lender profit while reducing borrower costs to bootstrap liquidity. Chainlink is already recognized as best-in-class for delivering price feeds for DeFi lending protocols from off-chain sources. Now, Lendvest is leveraging Chainlink Functions and Space and Time to deliver new financial products enabled by the increased verifiable data, memory, and compute offered by these platforms. By utilizing only on-chain data, we are effectively enhancing the computational resources available to Ethereum and other EVM chains. With these improved computational capabilities, Lendvest is positioned to introduce the next generation of financial products, further improving the decentralization and capital efficiency of DeFi lending.
