DeFi is More Than Lending

Cooper Turley
Mar 21 · 6 min read
Image courtesy of Inje Yeo

Most of the time when people hear the word “DeFi” they immediately think of lending protocols like Compound.

I mean, earning passive income by participating in global liquidity pools secured by smart contracts sounds pretty good right?

Even when we look at protocols like Maker and the Dai Savings Rate, it’s clear that many DeFi projects are focused on helping users earn a passive return on their assets while eliminating counterparty risk.

We’ve even seen unique spin-offs like Pool Together which leverage lending protocols for their no-loss lotteries.

With these notions in mind, it’s no surprise that the large majority of leading DeFi protocols measured in TVL happen to take the form of lending.

A glimpse into the popular DeFi leaderboard — DeFi Pulse

To capitalize on these opportunities, we started to integrate interest-earning assets like cUSDC into a variety of our Robo Sets.

In this article, we want to shift the spotlight away from lending and instead focus on some of the innovative new opportunities that DeFi is bringing to life.

Composability Is Key

In our last article, we touched on how Sets can act as the ultimate money lego for DeFi composability.

Over the next few months, we fully expect to integrate a suite of new features, assets and possibilities within our product, making it that much more appealing for users to give Sets a whirl.

In the meantime, let’s explore the integration of other DeFi sectors into the larger web3 ecosystem.

Asset Management

While there are tons of opportunities for traders to leverage unique portfolios and trading schemas, many nontechnical users lack the specialized knowledge to capture changing market trends.

With Set Protocol, we’ve tokenzied the ability to partake in complex trading strategies by purchasing an ERC20 token.

Whether this takes the form of assets which rebalance in accordance to technical indicators like Relative Strength Index or those which collect passive income during bear trends through integrations like Compound cTokens, TokenSets provide tons of flexibility for investors to capture optimal strategies with little to no prior trading experience.

With our recent introduction of Social Trading, competition has been breeding new strategies all with a common goal of beating the market.

We’re starting to see traders integrate more niche technical indicators in tandem with backtested algorithms, all of which are easily accessible to Ethereum users of all shapes and sizes with minimal fees.

These strategies have performed historically well in bear markets, allowing Set holders to accumulate Ether thanks to automated rebalancing prior to significant downtrends.

If you’re new to crypto and looking to leverage top traders know-how, head on over to TokenSets and find a Set that’s right for you.

Insurance

Perhaps the most crucial piece of infrastructure to unfold over the past year has been that of smart contract covers.

First popularized by Nexus Mutual, smart contract covers allow users to purchase protection on their assets in the event of hacks or thefts. The cost to do so is relatively cheap, and we’ve even seen the covers play out to perfection in the recent bZx attacks.

More recently, we’ve seen projects like Opyn come to the table — offering financial and technical risk protection through call and put options — effectively creating a way to hedge risk in the event that a lending protocol token like cDAI was to ever break its peg from the promised return.

Lastly, we’re starting to see these coverage providers work together — with projects like SaveDai offering baked-in insurance directly to an interest-earning asset.

Dive into SaveDai via their intro thread!

Moving forward, our users could purchase protection on any given Set using something like Nexus or Opyn.

Derivatives

As it stands today, many have come to regard Synthetix as a leading DeFi protocol outside of lending. For those unfamiliar, Synethetix allows users to issue Ethereum-based derivatives called Synths by locking their native token — SNX — as collateral.

In the most recent Archenar update, Synthetix is starting to introduce ETH as collateral, drastically increasing the capacity for Synth creation in the coming months.

What’s important to note here is that in order for any protocol — Synthetix, Maker, Compound, etc. — to scale, there’s a heavy reliance on the introduction of other assets to increase economic bandwidth.

With protocols like Synthetix, we can imagine a scenario in which tokenized Amazon stock is posted as collateral to mint new Dai.

While we currently offer a few Inverse Robo Synths, we could even integrate iSynths and other relevant derivatives into future Sets.

Decentralized Exchanges (DEXs)

While DEXs generally tend to miss out on the popularized TVL metric, the recent resurgence of volume on exchanges like Uniswap, Kyber and dYdX show that users are becoming more and more comfortable with noncustodial solutions — directly tying into the notion of permissionless financial primitives taking center stage.

Shoutout to Cole Kennedy for the graphic!

Let’s take a quick look at some of the unique mechanisms each of the aforementioned DEXs thrive on.

  • Uniswap — Anyone can add liquidity to a trading pool and earn a pro-rata share of the 0.3% trading fee
  • Kyber Network — With the upcoming launch of Katalyst, users can earn ETH rewards for market-making along with participating in governance decisions on how the exchange operates.
  • dYdX — Beyond DEX trading, users can take out leveraged long or short positions in a quick, intuitive fashion — all while earning passive income on DAI, USDC and ETH!

What unfolds is more and more opportunities for traders to capture in an exchange’s upside, directly incentivizing participation regarding product improvements.

For larger traders, you may have suffered from this thing called slippage. Thanks to the recent rise of DEX aggregators like 1inch and Paraswap, it’s now entirely possible to pull liquidity from multiple exchanges in one transaction — all of which results in an optimal order fill.

Paired with tools like 0x API, it’s never been easier for any product to integrate a DEX aggregator directly into their front end.

Moving forward, we can envision Sets which come preloaded with margin positions or with liquidity incentives for passive income.

DeFi is Maturing

Perhaps the most relevant topic here is that of accessibility. Rather than forcing users to navigate to a suite of applications to purchase the right assets and unlock the best opportunities, DeFi is gradually spawning new tools which allow for all the best aspects of web3 to be captured without ever having to leave the site.

With the rise in intuitive user dashboards, it’s clear that DeFi is quickly creating an extensive ecosystem of cohesive management tools.

Paired with risk-oriented products like DeFi Saver and the DeFi Score, it’s evident that sector is placing a strong focus on management tools which allow for more informed user experiences.

While we’ve only touched on the tip of the iceberg in this article, we’re constantly on the lookout for new DeFi primitives which can help improve our product.

If you or your team are curious to explore an integration with Set, join our Discord or reach out on Twitter!

We’re looking forward to an exciting year and hope that these topics can get the blood flowing on new possibilities to come.

Learn more about Set and join our community

Newsletter | TokenSets | Website | Medium | Twitter | Discord

Thanks to Anthony Sassano

Set Labs

Grow your crypto using automated asset management strategies

Cooper Turley

Written by

Chance favors the connected mind Editor @ DeFi Rate 📈 Scout @ MetaCartel 🌶️ Ambassador @ Set Protocol ⚖️ Director @ Fitzner Blockchain 📚Founder @ Xeno Recs

Set Labs

Set Labs

Grow your crypto using automated asset management strategies

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