How Cedro Finance is ReDeFining DeFi?
Lending and borrowing protocols lets users engage in lending, borrowing, and earning interest on cryptocurrencies. Among the early pioneers in this space were Compound and Aave, which established themselves as notable lending and borrowing protocols. In 2020, Ethereum stood unchallenged as the leading blockchain for DeFi, evident from its overwhelming share of over 95% Total Value Locked (TVL) in the DeFi ecosystem at that time. Therefore, it was logical for Aave and other protocols to focus solely on deploying their services on Ethereum, without concerns for other chains. However, the rise of DeFi during the DeFi summer brought forth new chains, resulting in Ethereum’s market share declining to around 55% currently. At the time of writing, rollups leveraging Ethereum as their foundational layer are emerging. This shift is accompanied by the emergence of a new generation of chains like Cosmos, Avalanche, Solana among others. Consequently, these OG protocols now face two significant challenges:
1) Missing out on liquidity outside of Ethereum ecosystem which is increasing every day
2) Their identical forks eating the TVL share on different chains
To tackle this problem, the OGs started deploying their protocol on multiple chains. This is evident with protocols like Aave, Uniswap, etc. living on multiple chains these days. They were able to capture significant TVL shares on multiple chains, but this only gave rise to more problems.
Even if they deploy their protocol in other chains, making them a multichain protocol, they are essentially different protocols since they don’t interact with each other across chains. For example, Aave on Ethereum is a completely separate protocol than Aave on Polygon because a user who deposited on Aave on Ethereum cannot leverage their position on Aave on Polygon. This fragments the liquidity across chains limiting users’ purchasing power and optimal experience.
Let’s take a real world analogy. Back in the days when the economy wasn’t globalized, the value of each country’s currency was only dependent on what it could buy inside their country. However, with time when many countries’ economies started booming and the globalized economy took off, the value started depending on what it could buy outside their country too. As a citizen of Country A, would you rather want to hold a currency that could buy you things only inside Country A, or would you rather want to hold a currency that could also buy you things from outside countries like Country B..Z? It’s the same case with USD right now. You can buyanything from anywhere using USD, but it's not the case for all currencies. This is what we are lacking in DeFi right now.
The purchasing power of users holding ETH is limited inside Ethereum because you can borrow assets only inside the Ethereum ecosystem by posting ETH on Ethereum as collateral. Same is the case for all the other chains. We need to find a way to encourage users to hold cryptocurrencies by expanding their purchasing power. This also limits the number of users that can utilize the provided liquidity since a user on chain B cannot utilize the liquidity on Chain A. This is why we are seeing an average utilization rate of Aave at ~25% across all the chains it is deployed on.
What if the borrowing power of a user holding ETH on Ethereum wasn’t limited inside Ethereum? What if they could borrow MATIC on Polygon, SOL on Solana, AVAX on Avalanche, etc. using ETH on Ethereum as collateral? This abstracts away the boundary of blockchains and increases the purchasing power of the assets held. This also increases the utilization rate of the provided liquidity since the liquidity in chain A can be utilized by users from Chain A..Z instead of just the users from chain A. The most important advantage, however, is the seamless UX it pushes. Users don’t have to worry about interacting with a different lending protocol for each chain they use, meaning it is completely chain agnostic. One step closer to DeFi adoption. This is the new generation of Lending protocols and exactly what we are building at Cedro Finance.
Multiple lending and borrowing protocols have realized this evolution. One of the primary ones is Aave. This is why they announced Portal with Aave V3. This is how it works. User A wants to lend ETH in Ethereum and Borrow AVAX in Avalanche. User A deposits the ETH in Ethereum and receives aETH, an interest bearing token as the receipt. Now, user A has to go to a bridge approved by Aave Governance, say Hop, submit a transaction to move their aETH from Ethereum to Avalanche. Hop now burns user A’s aETH on Ethereum and mints equal aETH on Avalanche minus fees. Now, users are able to borrow AVAX using aETH as collateral on Aave’s Avalanche Market. Right now, user A’s aETH in Avalanche is unbacked. Hop transfers the underlying assets of all the minted aTokens (ETH in our case) from Ethereum to Avalanche in batches. This introduces a few problems:
i) The bridge acts as a central point of failure,
ii) aTokens remain unbacked for a significant amount of time, which introduces different economic attack vectors,
iii) Wrapping the tokens by the bridge in the destination chain which adds additional layer of vulnerability to the funds,
iv) No guarantee of high liquidity for wrapped tokens in the destination chain.
v) Frequent transfer of large amount of funds across chains will attract many attackers,
vi) Not a significant improvement in UX compared to existing solutions.
Aave’s Portal seems like a glazing on the underlying problem rather than an actual solution.
Cedro Finance is revolutionizing the DeFi industry with a groundbreaking approach. Unlike other protocols that rely on bridges to transfer funds across chains, Cedro takes a different path. When a user lends ETH on Ethereum and wants to borrow AVAX on Avalanche, Cedro securely attests on Avalanche that the user has sufficient collateral locked in Ethereum to support the AVAX loan, using cross-chain messaging protocols like Axelar and LayerZero. The same process occurs on Ethereum when the user repays the loan on Avalanche and wants to unlock their ETH. This innovative solution enables users to utilize their assets across different chains without physically transferring funds. The result? Improved security, cost efficiency, and a seamless user experience. At Cedro Finance, we’re building the next generation of lending protocols, breaking down the barriers of traditional DeFi and empowering users with unprecedented financial freedom.
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