The future of idle funds optimization
Functional capital distribution for a more complete market.
Both in traditional and decentralized financial systems, people are continuously looking to optimize their returns. This has proven to be increasingly difficult. For instance, often your bond will no longer be profitable, your mortgage is not the most competitive on the market, or your savings account isn’t paying you the highest interest as promised.
There are new opportunities every day, and now you’re kicking yourself because your money is tied up in something that doesn’t give you the best return on the market. That’s a life-long problem, for everyone.
With the creation of the Bitcoin blockchain and subsequently the Ethereum blockchain, anyone can create their digitized token to represent securities, goods, services, real-world assets, and other asset classes. In the last year, Decentralized Finance (DeFi) gave birth to a permissionless financial infrastructure that embodies transparency and programmability.
To date, the major catalysts of DeFi have been lending protocols, which enabled the creation of interest-rate markets for Ethereum tokens. A multitude of short-term spot interest rates, that fluctuate in real-time based on supply and demand, unstuck the blockchain space from a zero-interest environment.
These interest-bearing tokens are becoming more numerous, and lending markets are increasingly fragmented compared to their centralized counterparts.
Break the fragmentation
Enter Idle Finance: a protocol that reduces this fragmentation by functionally redistributing users’ supplied liquidity across lending protocols, while tightening the spreads among interest rates and the supply gaps between protocols.
Optimized lending was just the first step for us, with the purpose of incorporating the concept of Adam Smith’s invisible hand into an on-chain computation. It allowed us to test our assumptions of a single token that represent an optimized basket of different interest-bearing assets and automatically rebalances itself (and, with enough funds, the market as well) toward its best liquidity-adjusted lending value.
In the long run, Idle aims to optimize allocation for different asset classes.
Potentially, every tokenized asset with an intrinsic yield can be included within a basket of the same asset-class tokens that automatically changes its composition in order to provide the best possible allocation.
We’re now evaluating other possible asset classes, such as the tokenized real estate market (RealT has a pretty solid solution). Any tokenized interest-bearing asset that will come up in the future can be potentially included in our optimization algorithm.
Beliefs shape reality
Our mission is to provide an effective capital allocation, which will translate into a more democratic borrowing rate level across different lending protocols. An aggregated and automated supply-side rebalancing protocol will even dispose of interest-rate risk, the risk that interest rates will rise after you enter into a contract position (in this case, when you lend your funds to a single provider).
This can be seen as a single point of access for liquidity suppliers to provide market completeness. It will empower innovators by delivering free access to the decentralized financial system.
Suddenly consumers could commission robo-advisors to move their cash to whoever is offering the best rates, or to automatically refinance debt. Value-added services from multiple vendors would be equally easy to access, meaning they would have to compete on price or terms. In other words, much like the open Internet, banks fear that profits will be rapidly transformed into consumer benefit.
Suppliers can be retail investors, institutional investors, or developers that want to plug their application into Ethereum money markets. Without any barrier to access it.
Let’s build something great together
We’re building Idle for the Ethereum ecosystem and its great community. We’d love for you to be part of our development process.