The Next Wave of FIL Loans Will Be On FILLiquid — Here’s Why
The next wave of $FIL loans will be on the FILLiquid protocol, as it offers Storage Providers (SPs) market-based interest rates and the ability to borrow $FIL without increasing their financial burden.
As a decentralized algorithmic-based liquidity protocol, FILLiquid aims to help the progress of the Filecoin Network by allowing a consistently increasing storage capacity over the long term through deepened liquidity.
Furthermore, lenders on FILLiquid earn a market-based interest rate for their deposited $FIL, benefiting all participants in the protocol.
As a result, FILLiquid is undoubtedly the best DeFi solution moving forward for both $FIL holders and SPs.
The Storage Provider’s Dilemma: Why do SPs need to borrow FIL?
Filecoin is a decentralized storage network marketplace built on IPFS technology that allows anybody to offer storage services.
The idea behind the network is to create a permissionless decentralized storage solution cheaper than all centralized options available today.
The decentralized architecture ensures data is stored and verified securely without needing a centralized entity.
To achieve this, Filecoin SPs must deposit a “pledge” as collateral in $FIL every time they provide storage to a client. The pledge ensures that miners store data reliably and act honestly in the greater need of the network, helping Filecoin remain trustworthy. The more space miners provide, the more collateral they need to pledge.
As a result, Filecoin SPs are ever-increasingly in need of obtaining $FIL to deposit as a pledge to continue their storage power growth.
Typically, three options are available to SPs to obtain more $FIL for pledges.
The first involves using $FIL rewards from previous storage deals. However, 75% of rewards are vested linearly over six months, making them unavailable to be used in operating income.
The second option is to buy $FIL from the open market, which forces SPs to take on additional financial responsibility as they sit through market volatility. Furthermore, the assets used to buy $FIL could be put to better use, such as buying more hardware to expand storage capacity.
The final option is through borrowing.
Where do SPs Borrow From Right Now?
There are both centralized and DeFi options currently available for SPs to borrow $FIL.
On the centralized side, SPs can choose platforms like CoinList and DARMA to borrow $FIL. However, these services typically charge elevated interest rates that never reflect real-time market conditions. In addition, they often require SPs to overcollateralize their positions by up to 150%, meaning they would have to deposit crypto or cash to obtain a $FIL loan.
Furthermore, centralized services keep most of the borrowing interest generated for themselves, providing little value to $FIL lenders, as well as requiring lenders to place a great deal of trust in the service to keep assets safe.
On the Defi Side of borrowing, there are numerous protocols that have emerged, attracting millions of $FIL in deposits. However, it’s evident that these protocols are inadequate as some require borrowers to still overcollateralize their positions, and analysts have stated that others have their risk management off-chain, presenting centralized risks.
Therefore, SPs require a decentralized service that doesn’t require over-collateralization, is fully decentralized and secure, and charges market-based interest rates.
This is where FILLiquid can help.
FILLiquid Provides Zero Up-Front Collateral Loans with Market Based Rates
As mentioned, FILLiquid is a decentralized algorithm-based liquidity pool and lending platform that lets $FIL holders lend their assets to earn interest. SPs can borrow $FIL from the liquidity pool without depositing additional collateral.
The protocol doesn’t require SPs to collateralize fiat or crypto for the loan. Instead, it employs the SP’s existing account balance and future income as collateral.
As the SP’s node contains pledged $FIL and receives future rewards, this can be used as collateral to secure the loan and protect the ecosystem from default risks.
When obtaining a $FIL loan, the SP’s Beneficiary Address is transferred to the smart contract to be used as collateral.
During the loan term, the SP doesn’t have direct access to the Beneficiary Address until the loan is repaid.
Furthermore, as the $FIL borrowed can only be used for storage expansion, it enters the service node, which can then also be used as collateral to protect the ecosystem further in the event of a default.
The borrowing rates are dynamically adjusted based on the supply and demand conditions. A higher demand for borrowing increases the utilization rate of the liquidity pool, driving rates higher. Conversely, a higher amount of $FIL staked into the pool reduces the utilization pressure and lowers the borrowing rate.
Overall, FILLiquid strikes the perfect balance between security and accessibility, allowing SPs to continue their storage power growth without taking on additional financial responsibilities. At the same time, it will enable $FIL holders to earn a fair market-based rate on their idle assets — creating a win-win for everybody involved.
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