Interest Protocol Using Chainlink to Power Capital-Efficient Borrowing and Lending
Interest Protocol is a new borrow/lend protocol that is highly capital-efficient thanks to its unique combination of fractional reserves and over-collateralization. Interest Protocol has chosen to use Chainlink as the primary oracle for the protocol.
Price oracles play a crucial role in every protocol that lends assets against collateral. An accurate, reliable, and safe oracle allows loans and liquidations to occur quickly and minimizes the risk of errors. Interest Protocol (IP) integrates Chainlink Price Feeds, which provide high-quality, tamper-proof price data and are battle-tested. Chainlink already helps secure leading DeFi protocols responsible for tens of billions of dollars in smart contract value, maintaining robust security and high availability even amidst unexpected events such as exchange downtime, flash crashes, and data manipulation attacks via flash loans. IP uses Chainlink as the primary oracle network by implementing a read-based oracle system that calls for the latest price at each instance a price is needed. This provides the highest level of accuracy and safety for borrowers and lenders.
IP has a unique oracle configuration to maximize the safety of the protocol, support future composability, and empower the community to vote on and manage new asset listings. All asset prices are aggregated into a Master Oracle contract, which maintains a list of asset-specific oracle contracts called Anchor View Relays. Each asset’s Anchor View Relay has a primary and a secondary oracle, as well as a configurable deviation. Whenever a price is utilized in a transaction, the protocol fetches the latest on-chain information from the primary oracle and certifies that the retrieved value is within a specified deviation of the secondary anchor oracle price.
If the main oracle price falls outside the deviation, the price will not update, and the underlying transaction will revert. This oracle configuration is commonly called a circuit breaker and acts as a safety feature that prevents usage of the protocol until governance can react or the market rectifies itself. Additionally, as a security measure, governance can pause reading from an oracle to effectively halt all operations that require the price of the asset. This configuration allows IP to use Chainlink oracles as the main price oracle while creating multiple layers of security to protect users during black swan events.
At launch, IP will use Uniswap V3 as the secondary anchor oracle for wETH, wBTC, and UNI. While Uniswap V3 is useful, it is not necessarily the most robust DEX anchor for all assets. IP’s oracle system is structured to be composable with other secondary oracles. Once the protocol launches, IPT holders can update the oracle configuration through governance proposals. The Master Oracle contract is a configurable parameter in the protocol’s core contract.
In the spirit of DeFi, IP’s oracle system eliminates the necessity of the team or third party assisting in the (hopefully!) frequent asset listing process. The asset listing process is simple compared to competing borrow/lend protocols because IP is based upon a read system that empowers the community to propose, vote on, and deploy oracle relays that can feed new asset data to the protocol.
About Interest Protocol
Interest Protocol is a borrow/lend protocol that adapts the fractional reserve system of banks to DeFi. Instead of posting houses as collateral and borrowing dollars, Interest Protocol users post wETH, wBTC, and UNI as collateral and borrow a stablecoin called USDi. Instead of depositing dollars into a bank and earning next to nothing in interest, Interest Protocol users deposit USDC into the protocol and receive the lion’s share of the interest paid by borrowers. While we have improved upon all of the core pieces of a borrow/lend protocol, such as the liquidation mechanism and the collateral system, Interest Protocol’s main innovation is the capital efficiency that comes from lending out its own stablecoin. Interest Protocol combines the capital efficiency of the fractional reserve system with the safety of over-collateralized loans.
Chainlink is the industry standard for building, accessing, and selling oracle services needed to power hybrid smart contracts on any blockchain. Chainlink oracle networks provide smart contracts with a way to reliably connect to any external API and leverage secure off-chain computations for enabling feature-rich applications. Chainlink currently secures tens of billions of dollars across DeFi, insurance, gaming, and other major industries, and offers global enterprises and leading data providers a universal gateway to all blockchains.