Edge Protocol — Create Your Own Money Market, Build Your Own Edge
Considering the importance of the problem Edge Protocol is trying to solve, it is probably one of the most overlooked projects in the Terra ecosystem. Although there are many tokens in the crypto market, most are NOT productively utilized, meaning that they do not generate any revenue. While creating benefits for communities, protocols can utilize those assets instead of by creating their own pools on Edge Protocol. Hence, Edge Protocol is Terra’s first protocol to allow anyone to create customizable liquidity pools and markets for assets that allow users to perform multiple actions:
— Build bank operations on a platform
Edge Protocol provides protocols with the freedom to create lending mechanisms (e.g. margin trading, leverage yield farming) without the programming cost and time input.
— Create an alternative revenue stream for existing protocols/users within the Terra ecosystem
Any activities happening within the protocol-owned pool become a new source of revenue. For instance, the pool manager can lend a portion of their assets to users in return for interest. Unlike the case with other services like Compound, where the platform retains pool fees for operations, Edge allows users to manage and collect the fees fee directly.
— Allow protocols and DAOs to manage their treasury independently
Edge Protocol allows protocols to make use of their treasury tokens, allowing them to generate revenue from the treasury assets without selling them.
Other functions include:
— Enable long-tail assets and assets that mature to be listed.
— Borrow against yield-bearing assets
— Hedging to limit exposure to other assets (e.g., Delta neutral strategy)
— Leverage any asset
— Create micro-financial services
With over 160 projects expected to be launched on the Terra ecosystem next year, new markets will be needed to accommodate that many new tokens. However, some projects may find it initially difficult to list on an exchange due to the lack of liquidity. Besides, existing platforms expect ongoing fees in return for listing, and the approval process is often lengthy and costly. Edge Protocol changes this all by allowing protocols/users to create their own money markets with the revenue directly going to those creators. The project’s motto is “Create your own money market, build your own edge.” To get users and protocols involved, Edge Protocol utilizes community-based money markets with three main components, where each component has its own stakeholders.
A) Customised pool creation (for pool creators).
B) Pool marketplace (for traders, lenders, and borrowers).
C) Liquidation (for liquidators and liquidity providers).
A. Customised Pool Creation
Edge Protocol allows users/protocols to create a pool by listing any asset they want and customizing all parameters. They then can earn money through the market fee collected in their pool, which generally would have gone to third-party platforms. Pool parameters can include
- Oracle (pool creators can select the pool oracle)
- Asset listing parameters (e.g., long tail, maturity date, etc.)
- Risk parameters (users can select the level of risk they want to be exposed to (e.g., LTV threshold))
- A collateral factor (the percentage of collateral needed to borrow)
- A borrowing factor (e.g., set limits on borrowings)
- An interest rate model (select the target utilisation rate model that matches their purpose)
- The percentage of fees shared (select percentage of fees collected from transactions across your pool)
- A whitelisted contract (select whitelisted contract address for a specific group of people)
B. Pool marketplace
Edge Protocol is not a money market itself. Instead, it allows protocols to create money markets while giving non-pool creators permissionless access to those pools. People can access tons of pools easily through the Edge Portal, where they can trade, lend and borrow. Two types of pools will emerge with the help of Edge Protocol. The first one is the public pool, which offers general features that can be found across many other platforms such as Compound, Aave, or even Mars. The latter will be a private pool created to satisfy users’ needs with specific requirements (e.g., bootstrapping and small group lending).
C. Liquidation
Stability Reserve
When the LTV for particular assets exceeds a certain threshold in the traditional money market, the protocol will liquidate the collateral required by swapping it through a DEX. However, liquidating externally can be challenging in a permissionless context due to the lack of liquidity on DEXes and price impact. Hence, since Edge protocol allows people to list any asset in the created pool in a permissionless way, there is an inherent risk coming from the volatile behaviour of some assets and lack of liquidity. To mitigate those risks, Edge deliberately designed a liquidation mechanism. The liquidation mechanism is a stability reserve designed to liquidate assets by swapping them with the underwater collateral. Liquidators stake their assets in the stability reserve to hedge for risk and receive a portion of the lender’s profits in return. Furthermore, since all pools powered by Edge protocol function independently and are not interlinked in any way, any risks introduced into a pool by the pool creator, either through the assets allowed or the pool parameters, are solely contained within the market with no chance of affecting others.
3 Phases of Pool Creation
With the ultimate goal of becoming a leading “permissionless” pool creation platform on the Terra ecosystem, the Edge Protocol plans to expand its services to the community in three phases:
1st phase — Protocol-owned money market
2nd phase — Community-owned money market
3rd phase — “Be your own bank”
The first phase, as the name suggests, is mainly targeted at protocol-owned money markets, in which Edge Protocol will be partnering up with protocols and dApps built on Terra to bring this idea to fruition and show the world the benefits associated with such a product.
To summarise, thanks to Edge Protocol, money markets will become more decentralized. Protocols will have much more flexibility when listing their assets, while users have access to a broader range of services, thus boosting their earning potential. In addition, through Edge Protocol’s front-end, anyone can become a money market owner without needing to build the market themselves from scratch. In the future, the protocol will continue expanding. There are, at the moment, three stages in the pipeline, as can be seen in the illustration above. Their plans are very ambitious, and if they succeed, Edge Protocol could become a major player within the Terra ecosystem.
More Information
- Edge Protocol Twitter: https://twitter.com/EdgeProtocol
- Edge Protocol Telegram: t.me/edgeprotocol
About Qi Capital
Qi Capital is a group of like-minded and experienced individuals from around the globe, sharing two common objectives: providing insights about crypto and Defi, and proactively working with ambitious teams on the future of decentralized finance. Our core principle is to promote and foster individual creativity, growing not only as a group but also as creative thinkers and builders. To learn more about us, check out our website www.qicapital.org and our “Qi Podcast” via www.buzzsprout.com/1729379/ or engage with us on Twitter: @QiCapital.
Disclaimer
This content is for informational purposes only and you should not make decisions based solely on it. This is not investment advice. All market prices, data, and other information are not warranted as to completeness or accuracy, are based upon selected public market data, and reflect prevailing conditions and the author’s own views as of this date, all of which are accordingly subject to change without notice.
