A Walk Through of the BuddyDAO Protocol Architecture
DeFi lending is overcollateralized! For every $1 borrowed by someone, they must first put up $1.5 or more from another asset they already have.
This collateral requirement is what makes the lenders and borrowers switch frequently to DeFi. The collateralized loans are only good for the crypto holders and borrowers who don’t want to sell their positions. But there is a large chunk of the global audience who want to borrow loans in the first place when they don’t have the money or any other assets to put up at stake.
Imagine small business owners around the world seeking financial help! DeFi has the power to transform access to capital to even the remotest areas of the world. Hence, crypto can breakthrough into the global debt markets and gain major traction. But that’s only possible if loan borrowing and lending can be done without collateral.
And that’s when BuddyDAO comes to help!
Traditionally, it’s expensive for the banks to underwrite as they don’t know their borrowers. This sets a threshold for the lenders and cuts out the opportunities for borrowers to take loans whenever they want.
But what if we take the collective judgment of people around the world to bring in more trust and credibility! There’s a vast untapped layer of underwriting potential from the thousands and millions of people around the world who can identify and assess new sources of creditworthiness.
BuddyDAO brings in guarantor-based lending where the guarantor knows the borrower closely and can assure the platform about his creditworthiness. This will make everyone across the world get loans in seconds. This will foster a whole new level of lending and borrowing mechanism that will change the way DeFi works today!
Introduction to the BuddyDAO Protocol Architecture
BuddyDAO is a decentralized lending and borrowing platform that allows three types of users to interact with the BuddyDAO Protocol –
1. Lenders
They will deposit stable coins into the BuddyDAO protocol and get BNote tokens in return. These BNote tokens can be redeemed as stable coins on loan maturity. The lender may also sell the tokens in DEX to get their stable coins back.
2. Borrowers
Borrowers can request for a loan anytime they want. All they need to do is to bring along a guarantor who can apply for a line of credit in a stable coin. This guarantor must have off-chain data about the borrower to predict his creditworthiness to the platform.
3. Guarantors
After joining the BuddyDAO protocol, guarantors will need to deposit their crypto assets such as Bitcoin to get a credit line back. This credit line can be extended to the borrower to draw funds in stable coins.
Let’s go through the details of each of the components of the architecture and understand the workflow.
1. Lenders
Also termed ‘investors’ or ‘liquidity providers’ are the people who provide funds into the BuddyDAO protocol from where the capital is distributed to the borrowers.
2. Borrowers
They are the individuals or the companies looking for a loan. They will be the ones to bring in the guarantors to the BuddyDAO protocol.
3. Guarantors
Someone who knows borrowers closely and can assure us about their creditworthiness. They would be paying the loan amount in case borrowers were unable to do so.
4. Crypto Assets
BuddyDAO protocol will support 4 crypto assets –
- BCTB and BNB as Collateral
- BUSD and USDT as Stable coins.
5. BNote Tokens
Lenders will deposit their stable coins like BUSD and USDT as collateral and generate BNote tokens which can be redeemed on loan maturity or sold in DEX in return for stable coins.
Let’s understand the whole protocol architecture with an example –
John wants to get a stable coin loan for financing his startup. He does not have any crypto assets to put at stake but he has a friend Louis who does have Bitcoin. John thinks BuddyDAO is the perfect option for borrowing the loan. Hence, he invites his friend Louis to be his guarantor.
Louis deposits 1 Bitcoin into the BuddyDAO protocol and gets a line of credit of 0.5 bitcoin worth of the stable coin.
Since Louis (the Guarantor) knows John (the Borrower) pretty well, he extends his line of credit to John and limits it to 0.1 Bitcoin. That means Borrower John can borrow up to 0.1 Bitcoin with a stable coin anytime from BuddyDAO with no collateral required.
All he needs to do is to pay weekly interest in stable coins to BuddyDAO and BuddyDAO will distribute interest payment to guarantor Louis as well as the lender Eric.
So, this is how the BuddyDAO protocol works for streamlining DeFi lending and borrowing to a wide range of users across the world. However, many features of BuddyDAO Protocol are under development and not yet fully available but soon will be.
The project is aimed at making DeFi lending and borrowing easy, fast, and more accessible for people. To build our community stronger and expand our reach, we need you to join us onboard.
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