An Ecosystem-Sized Step Function: Hedera DeFi 2.0

How the next wave in Hedera DeFi infrastructure sets the scene for real and sustainable growth

Throughout history, the industrial evolution has been marked by pivotal moments where innovation, infrastructure, and strategic policies propelled economies & sovereign ecosystems into prosperity and slow movers into systemic impoverishment. The most successful nations harnessed technological advancements, optimized resource management, and fostered robust economic frameworks to achieve sustained growth. Their ability to adapt, innovate, accept change while investing in human capital, and maintaining stability created a foundation for modern economic success.

Sovereign economies of Web3

Similarly, in the era we have titled “Web3”, digital economies thrive through innovation, liquidity, and active user engagement. Each sovereign ecosystem identifies by using their own cryptocurrency as a form of taxation and is at various development stages from a tribe to a thriving economy.

Web3 participants within the Hedera ecosystem, where taxation and pricing of goods & services(NFTs, FTs, P2P trade & services) are pegged to the HBAR cryptocurrency, the continued development is determined by internal but also several external factors. These include interoperability with other chains, protocol layer innovation, education, and human capital management. Many of these initiatives are long-term and interdependent, much like the industrial advancements of the past.

Common Denominators for Growth

When comparing Hedera to other Web3 economies, a common denominator for accruing market share is evident: on-chain activity coupled with Total Value Locked (TVL) and succesful applications of tokenization. These metrics are critical in demonstrating the ecosystem’s robustness and potential for sustainable growth.

Hedera’s Step Function

Enter Hedera DeFi — a transformative phase marking a significant step function in the development of the Hedera economy.

Historically, maintaining active participation in Web3 ecosystems has been challenging when relying solely on the promise of future utility. The Hedera ecosystem, as a sovereign economy, has experienced similar dynamics due to the limited immediate utility of HBAR. However, with ongoing developments and expanding use cases, Hedera is on a promising path to enhancing user engagement and fostering a vibrant community.

The landscape is evolving as the advent of DeFi on Hedera enters a new era, signifying a new dawn for the Web3 economy. With crucial infrastructure components falling into place and DeFi money Legos being constructed atop one another, Hedera is poised for significant growth. The introduction of a broader range of financial instruments and opportunities for users has never been more promising, warranting an unprecedentedly optimistic outlook.

A New Dawn with DeFi

The introduction of three leading lending and borrowing protocols is set to shape Hedera’s financial landscape. These protocols — HLiquity, Bonzo, and Sirio — not only enhance liquidity, the velocity of on-chain assets, and their utility but also provide diverse financial instruments that cater to a broader user base and an increased number of participants. This development represents the culmination of community efforts to build a resilient and dynamic DeFi ecosystem, created by the people and for the people, fostering a thriving and improved economy.

HLIQUITY

HLiquity: Revolutionizing DeFi with Interest-Free Loans

In the rapidly evolving world of decentralized finance (DeFi), HLiquity stands out as a pioneering protocol on the Hedera network, offering users a unique opportunity to obtain interest-free loans. By leveraging HBAR as collateral and disbursing loans in HCHF, a stablecoin pegged to the Swiss Franc, HLiquity is set to transform the DeFi lending landscape. Here’s how HLiquity is making waves and why it’s a game-changer for borrowers and investors alike.

What is HLiquity?

HLiquity is a decentralized borrowing protocol that allows users to take out interest-free loans by using HBAR, the native cryptocurrency of the Hedera network, as collateral. The loans are issued in HCHF, a stablecoin pegged to the Swiss Franc, ensuring stability and reliability. HLiquity operates as a non-custodial, immutable, and governance-free protocol, providing a transparent and secure borrowing experience.

Key Features of HLiquity

1. Interest-Free Loans: One of the standout features of HLiquity is its provision of 0% interest loans. Users can collateralize their HBAR to receive HCHF without worrying about accruing interest over time. This makes borrowing more accessible and less burdensome compared to traditional financial systems. Moreover, it allows borrowers to better predict their financial obligations, enabling more effective personal and business financial planning. By removing the compounding interest factor, HLiquity also supports long-term investments and economic stability, fostering a healthier financial ecosystem.
2. Pyth and Supra Oracles: HLiquity integrates with Pyth and Supra Oracles to ensure accurate and reliable price feeds. These oracles provide real-time data for HBAR and CHF, which is crucial for the smart contract to function correctly and maintain the protocol’s security and efficiency. By utilizing these advanced oracles, HLiquity can operate with precise and timely information, ensuring optimal performance and reliability.
3. Stability Pool: HLiquity enhances loan security through a Stability Pool containing HCHF. This pool acts as a safeguard, maintaining the necessary collateral levels and protecting the protocol against under-collateralized positions. Users who contribute to the Stability Pool can earn rewards in HLQT tokens and additional collateral, making it an attractive option for participants.
4. Redemption Mechanism: To uphold the value of HCHF, HLiquity includes a Redemption Mechanism. This allows HCHF to be exchanged for HBAR at face value, ensuring that the stablecoin maintains its peg to the Swiss Franc. This mechanism provides an additional layer of stability and trust for users.
5. Non-Custodial, Governance-Free, Public, and Permissionless: HLiquity remains true to the core principles of DeFi by being a non-custodial and governance-free protocol. Users retain full control over their assets, promoting a decentralized and secure environment. The protocol’s immutability ensures that its rules and operations cannot be altered arbitrarily, further enhancing user confidence. Additionally, as a public and permissionless system, HLiquity allows anyone to participate without restrictions, fostering inclusivity and broadening access to financial services.

Why Choose HLiquity?

HLiquity addresses several challenges faced by the DeFi lending market on the Hedera network. By offering interest-free loans and integrating robust security measures, HLiquity provides an efficient and reliable borrowing solution. Additionally, its use of Pyth and Supra Oracles ensures accurate data feeds and its commitment to decentralization aligns with the fundamental ethos of DeFi.

Whether you’re a borrower looking for an affordable loan option or an investor seeking to earn rewards through the Stability Pool or staking HLQT tokens, HLiquity offers a comprehensive and innovative platform. As HLiquity continues to evolve, it promises to enhance the DeFi ecosystem on Hedera, opening new opportunities for growth and financial inclusion.

For more information about HLiquity and to stay updated on the developments, visit the official website https://hliquity.org/.

BONZO FINANCE

An Introduction

The Bonzo Finance protocol is an open source, non-custodial lending and borrowing protocol built on the Hedera network. It is designed to facilitate the lending and borrowing of cryptocurrencies, with a focus on HBAR, Hedera Token Service (HTS) tokens, and wrapped major assets.

Bonzo Finance is based on Aave v2 — the most utilized lending & borrowing protocol on Ethereum — and has been adapted to the Hedera EVM (Ethereum Virtual Machine) and native Hedera Token Service (HTS).

Bonzo Finance utilizes Supra and Pyth oracles that enable accurate and reliable price feeds for the lending and borrowing of assets, ensuring transparent and efficient operations within the protocol.

Bonzo Highlights

Flash Loans Flash Loans are a unique type of uncollateralized loan that allows users to borrow substantial amounts of cryptocurrency for a brief period, execute a specific set of transactions, and repay the loan, all within a single blockchain transaction. This revolutionary mechanism has opened up a world of possibilities for DeFi users, enabling them to take advantage of arbitrage opportunities, optimize their positions, and access liquidity in ways that were previously unimaginable. Learn more about flash loans >

Overcollateralized Loans Collateralization is the process of a borrower securing a loan by pledging assets of value, such as cryptocurrencies, as collateral to mitigate the lender’s risk and ensure repayment of the borrowed funds; it is a risk mitigation mechanism employed by most DeFi lending protocols to protect lenders against borrower default and ensure stability of the protocol.

Using Bonzo Finance, retail and institutional users can supply supported cryptocurrency assets to the protocol as collateral, and borrow supported assets based on the value supplied.

This allows for users to retain custody of their underlying collateral, while gaining exposure to other assets on Hedera to use for various purposes.

HCS-20 Point Rewards Inspired by Kamino & MarginFi on the Solana network — points are designed to reward users for protocol engagement & help usher in DeFi 2.0 on the Hedera network.

The Bonzo Finance points campaign starts day one of mainnet launch & runs for three seasons, each lasting ~6 months. Throughout each season, users are rewarded points for lending & borrowing activities. At the end of each season, accumulated points are converted to airdrop rewards, ensuring a wide distribution of the $BONZO token to support decentralization of the protocol’s governance.

Learn more about Bonzo points >

Liquidation Bot Ecosystem

Liquidation bots play a critical role in maintaining the stability and health of decentralized finance (DeFi) protocols, particularly in the lending and borrowing category. These bot ecosystems are automated programs, operated by anyone, that constantly monitor the health of borrowers’ collateral positions within the protocol, ensuring that the value of the collateral supplied remains above a certain threshold relative to the borrowed amount. This threshold is known as the liquidation LTV (loan-to-value) ratio and it’s typically set by a protocol’s DAO on a per asset basis, to manage risk and protect lenders’ funds.

When a borrower’s collateral value falls below the liquidation LTV (typically due to market volatility or a decline in the collateral asset’s price), liquidation bots spring into action. They compete with each other to automatically identify undercollateralized positions and initiate the liquidation process. These bots repay a portion of the borrower’s outstanding debt by selling the collateral asset on the open market.

The activities performed by liquidation bots serve several essential functions within the DeFi lending and borrowing ecosystem:

• Risk Mitigation: Through identification and liquidation of undercollateralized positions, liquidation bots minimize potential losses for lenders. This rapid action ensures that lenders’ funds are protected, even in the face of volatile market conditions or sudden price fluctuations of the collateral assets.
• Stability Maintenance: By efficiently managing the liquidation process, these bots help to prevent the accumulation of bad debt and ensure that the protocols remain solvent and functional.
• Incentivized Participation: Liquidation bot operators are incentivized to perform this activity through a liquidation reward. This reward is typically a small percentage of the liquidated collateral that the bot operators get to keep as a reward for their efforts. The incentive structure encourages an active and competitive liquidation bot ecosystem.

The Bonzo Finance Labs team is excited to announce the launch of the Bonzo Finance protocol on the Hedera testnet, a testnet HTS token faucet in the official Discord and official documentation. This marks a significant milestone along Bonzo Finance Lab’s journey of ushering in the DeFi 2.0 ecosystem on Hedera via decentralized lending & borrowing functionality.

Testnet availability allows everyone to explore and interact with the Bonzo Finance protocol in a test environment using testnet HTS assets, while providing valuable feedback and insights to the Bonzo Finance Labs team as they prepare the protocol for mainnet launch.

SIRIO

Sirio Finance is a decentralized finance (DeFi) protocol leveraging Hedera’s advanced performance to offer a secure, anonymous, and permissionless platform for lending and borrowing assets. Designed to cater to all users, Sirio stands out with its data-driven approach and integration of Artificial Intelligence for loan risk management, which helps minimize the risks associated with borrowing. The platform’s user-friendly interface, built with the support of the entire community, ensures an intuitive experience for users of all levels, while Hedera’s technology facilitates rapid transactions.

Sirio Finance Features

Sirio provides two primary services: earning passive interest and borrowing assets. Users can deposit their assets to earn a competitive APY, making it an attractive option for passive income. Borrowers can leverage their holdings by borrowing assets, supported by a robust and secure architecture that includes an AI model and audits from top-tier firms.

The platform’s analytics feature enables users to track individual account stats, such as active balances and account health, as well as global stats, including total liquidity lent and Total Value Locked (TVL) distribution. This transparency helps users make informed decisions and manage their assets effectively.

A Brief Roadmap: Lead AI adoption within DeFi

Sirio Finance has set ambitious goals across different timeframes. In the short term, it aims to improve token liquidity flow and increase Hedera DeFi TVL while educating users about the benefits of borrowing on the platform. Mid-term objectives include attracting new users from other blockchains through innovative AI features. Long-term, Sirio aspires to lead in AI adoption within the DeFi space and establish partnerships with leading protocols to offer its AI model as a service, becoming a pioneering DeFi protocol.

Sirio Finance has become a member of the Hashgraph DeFi Alliance to support the expansion of Hedera’s DeFi ecosystem. Our primary objectives include offering educational content about lending and borrowing protocols. This will help users understand the benefits of lending and borrowing assets, provide strategies to boost passive income, and provide useful suggestions on how and why borrow on Hedera. This initiative seeks to attract users from other blockchains and ensure the secure use of assets for both Hedera-centric and cross-chain users. Through these efforts, Sirio aims to foster a more robust and user-friendly DeFi environment on Hedera.

Step-function as a stepping stone

With the right attention and education, DeFi on Hedera is poised for unprecedented growth. With foundational elements in place and the strategic introduction of advanced financial protocols, Hedera is becoming well-equipped to thrive in the competitive Web3 environment. This step function signifies more than just incremental improvement; it heralds a new era of innovation, engagement, and evolution into far-reaching success for the Web3 sovereign economy and its community, a true step-function HBARbarians needed and deserved.

AUTHORS
Brady Gentile — Founder of Bonzo Finance Labs, Hashgraph DeFi Alliance Member
Giacamo Maraglino — Founder of Sirio Finance, Hashgraph DeFi Alliance Member
Reto Habegger — Co-Founder of Swisscoast & HLiquity , Hashgraph DeFi Alliance Member
Tudor Holotescu — CEO of HeadStarter, Hashgraph DeFi Alliance Co-Founder

Resources:
https://hliquity.org/
https://bonzo.finance/
https://www.sirio.finance/
https://headstarter.org/
https://hashgraphdefialliance.org