Decentralized Lending Pool (DLP) Protocol Launched on Testnet — Swap Between Fixed and Variable Rates
After many months of hard work, we are proud to announce that the initial iteration of the Decentralized Lending Pool (DLP) protocol is live on the Kovan Testnet, representing the first step towards the launch of the next iteration of lending products developed by Aave.
With the Decentralized Lending Pools Aave proposes a lending model which evolves from P2P Order Matching to a Pool based approach. Lenders will become liquidity providers, by earning passive income without having to monitor the repayments and liquidations, while borrowers at the same time will be able to deposit their collaterals into the protocol and borrow against them instantly — no need to wait until the loans get funded.
Aave DLP key features — What makes it great
- Instant deposits and withdrawal within the reserves smart contract
- Instant borrowing from the reserves, with one single, perpetual credit line — no scheduled repayments.
- Multi-collateral borrowing: users will be able to borrow against multiple collaterals at the same time.
- Possibility to borrow at either variable or fixed interest rate, and switch between the two options at any time. 🚀
- Decentralized insurance fund, which will collect a small part of the pool income to cover losses in case of liquidation issues.
- High granularity in handling different collaterals — Every collateral will have a specific Liquidation Threshold and Loan To Value ratio, which means that riskier collaterals will allow smaller loans and will be liquidated earlier, to ensure the safety of the protocol.
More functionalities are in the pipeline and exact details will be rolled out once properly tested internally.
Fixed rate in a pool based lending platform? Whoa!
Fixed rates give the ability to investors to foresee their total exposure in advance, which will allow better investments. But having fixed rates in a pool based protocol is inherently difficult. So how was it implemented?
The idea is to provide a baseline Fixed Borrow Rate using a Market Rate Oracle. The oracle will fetch the borrow rates of multiple lending platforms and generate a representative average rate which will then be used as a baseline within the pool. In normal circumstances (enough liquidity available) the platform will offer both fixed and variable borrows at a competitive rate. Users will be able to seamlessly choose between the two modes, and switch between these modes at any time.
The challenge with the fixed interest rate arises when there is low liquidity available, which means high borrow demand or depositors withdrawing their liquidity. In that case, at some point the fixed rate for new borrowings will begin to increase above the market rate, linearly with the utilization rate of the specific reserve. New fixed rate borrows will still be granted, but at a progressive increasing rate. What happens with the borrows that are already in progress though?
Under certain specific, critical conditions (utilization rate above 90% for as long as one month — this is just an example though, we are still experimenting with the protocol the best parameters for this scenario) the borrows with a fixed rate that is too low compared to the current rate (e.g., 10% below the current — again these numbers are just indicative, take them with a grain of salt) are automatically switched by the protocol to the latest fixed interest rate available. The protocol will allow anybody to invoke a function that will switch the rates of the borrowings with low rates. Aave will monitor the borrowings with a service and will switch automatically, notifying the user at the same time. Note that this will happen in the opposite situation as well — when the utilization rate of the pool drops significantly for a certain period of time, all the borrows with a rate that is too high compared to the current fixed rate will be switched automatically to the lower rate.
To extensively test the protocol a basic User Interface has been developed. Access to the client is for now on a per-invite basis. We are looking for people interested in testing the protocol. If you want to try it out shoot a mail to email@example.com and we will provide access. Please note that the client is a work in progress, and the tokens listed are not representative of the actual tokens that will be available in the final version. The actual UI/UX of the product will be much simpler and clean, and the tokens listed will be carefully selected after evaluating specific parameters. The primary goal right now is to test the core functionalities of the protocol and to sort out the most glaring bugs, once that is done, access will be made public. If you are interest but don’t know how to test an Ethereum dApp, please check this comprehensive article first.
Documentation, API, ABIs
Documentation of the protocol is available at this link.
API and a GraphQL layer are available to allow developers to build apps and interfaces on top of the DLPs.
And the token ?
LEND token will be natively used in the protocol for governance purposes: you will be able to express your voting power using the token in the pools and decide on strategic governance decisions at the protocol level using your lend token holding.
A detailed article on the governance will follow in the coming weeks to introduce the various governance functions and how pool level voting power is calculated.
Staking will also play an important role: Staking LEND within the protocol will empower borrowers with fee reduction across all the different reserves of the pool. Staking will also be involved in integrating external partecipants (oracles) into the protocol, for governance and security.
All the current usecases of the token (using LEND as a currency and collateral) will still migrated to the new protocol.
And one more thing… A much requested feature of the lend token is finally coming to life : the implementation of a deflationary token. The protocol will take fees at the pool level to buy the token from the market and burn it.
Announcing the protocol auditing by Trail of Bits
DLP Protocol will be completely audited and the technology is open source. We are glad to announce that the first iteration of the protocol will be audited by Trail of Bits, who is a world leader in the information security industry, particularly around bytecode analysis of compiled software.
When open source?
Protocol will be released open source once the debugging and auditing of the contracts is completed.
That’s it — Get in touch and start testing!
To discuss the new features, request access or make feature requests, don’t forget to join our Telegram channel, or tweet at us or shoot us an email to firstname.lastname@example.org — we love to hear your feedback!