What is Lending & Borrowing?

— Why you should invest in Klaybank Lending(1)

klaybank

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Klaybank

5 min readDec 20, 2021

What is the basic structure of the Lending & Borrowing protocol?

Klaybank is a project based on the open source of AAVE that is operating in the Ethereum network. AAVE is a Lending & Borrowing service that has started in January 2020. ETHland, which started with a P2P loan in 2017, started operating the service under the name AAVE in January 2020 through rebranding.

COMPOUND, which operates the same service, was also created in 2017. AAVE, COMPOUND, and most of the Lending & Borrowing protocols affected by this have basically the same structure as it is a project that supports deposits and loans of cryptocurrency in a decentralized environment.

Investors with cryptocurrency assets sends cryptocurrency in DeFi, not exchanges, for safe additional profits, and investors who need additional loans leave their assets in protocols without selling them, borrow and use the assets of depositors and repay them in the future.

AAVE and COMPOUND are the same in this basic structure, but they are very different in detail depending on the decision made by each DAO. You can make a difference in basically everything, such as the distribution ratio between pools and the distribution ratio to borrowers/depositors, and so many others. However, the most important difference among the activated functions at this point is the usage of Flashloan and governance tokens.

What part of AAVE did Klaybank borrow?

As mentioned earlier, AAVE differs in terms of Flashloan and usage of governance tokens. Klaybank team thought AAVE’s unique strengths over other deposit/loan platforms in terms of Flashloan and the usage of governance tokens.

Large amount of deposit balance are usually on the platform. If all of these funds are used for loans as soon as they are deposited, the platform’s Capital Efficiency will achieve 100%. However, it is difficult to maintain Capital Efficiency at a high level all the time. From the platform’s point of view, the more capital efficiency is maximized, the more value it can be returned to users, so efforts should be made to rotate deposited funds to increase the value of the platform.

Flashloan makes loan and repayment simultaneously through code that can be processed within a single block. Through a rich pool of deposit balances, Klaybank can capture arbitrage opportunities in the Klaytn ecosystem to promote healthy Klaytn ecosystem and return profits to KBT holders through continuous inflow of fees.

AAVE also uses governance tokens to protect protocols as well as voting rights for governance. AAVE holders handle some damage with the protocol in case of an expoit to AAVE by staking AAVE in the Safety Module. In return for this contribution, AAVE distributes stkAAVE with Cooldown period to Stakers.

Governance tokens themselves are like the sovereignty of protocols that contain the value of protocols. So when protocols grow, their value is reflected in governance tokens. AAVE further uses a way of rewarding shareholders with sovereignty if they bind their sovereignty to participate more actively in protecting the Protocol.

As a result, the service has a practical function of “Insurance” for deposits, and holders have a effect of strengthening the community while acquiring new uses (compensation) for sovereignty. Most governance tokens doesn’t have this kind of usage.

AAVE is also attempting to create credit that is not currently in Crypto through credit delegation. AAVE’s ideology is to continuously bring possible concepts from existing finance to Crypto, and Klaybank also decided to fork AAVE because we gathered as a team that share similar thoughts.

Why should I use Klaybank?

If you hold the cryptocurrency purchased on CEX (Centralized Exchange) such as Bithumb and Coinone, you do not receive any additional profits even though the holding period is long. Cryptocurrency holders are unable to take advantage for most of the opportunities to generate additional profits not knowing DeFi.

This means no matter how much cryptocurrency a user holds, each one earns 0 in profits, and this is a huge loss from a perspective of an Opportunity cost.

Everyone knows that cash is a loss if they hold it as it is, but many investors are relieved and leave their assets on the exchange just because they invested in cryptocurrency that is growing at a high CAGR. Then, what is there to do?

The easiest (and not quite dangerous) way to generate revenue with DeFi is to use DeFi by ‘farming’ with stable coin pairs. However, it is unable for holders who expect certain cryptocurrencies to spike to use this risk-free method. Then, what are the other strategies?

Holding the asset as it is and using Lending & Borrowing Defi is one way. In this case, you will not be exposed to IL(Impermanent Loss) because you do not make a LP, and you do not have to force yourself to hold some unwanted pair. Of course there is a risk of price fluctuations, but it is a manageable risk for those who is willing to take the risk of falling and carry their assets in the long term.

This is why Lending & Borrowing Defi has a much higher TVL than other Defi such as DEX (AAVE 13.2B, UNISWAP 9.7B; Source: Defipulse) in the Ethereum network, and it can be seen that there is as much faith as the TVL in the long-term outlook of cryptocurrency.

For all the above reasons, CEX is also offering a variety of “staking” products, but due to the nature of CeFi’s various costs such as labor costs and failure to distribute its own governance tokens, the rate of return will fall far short of DeFi services.

Accordingly, users are advised to use Defi Lending for long-term storage of cryptocurrency assets if they have some understanding of Defi.

In the following article, we will take a look at Klaybank’s powerful features such as Flashloan, Safety Vault, and Bonding, and discuss why you should invested in Klaybank than any other Lending.

This article is Klaybank’s second post following “Introducing Klaybank.” Until the service opens, articles explaining various features of Klaybank such as IDO news, investment news, etc will be posted one after another, so don’t miss it!

Airdrop Event

Period : December 17, 2021 ~ January 8 , 2022
How to : Pass all 6 entries below. 2 entries are extra.
Prize : 1,000$ for 10 / 100$ for 100
Link : https://giv.gg/klaybank-airdrop
Date of Airdrop : January 18, 2022