How Silta intends to unlock the $250 billion DeFi market through a collateral bridge into real-world assets
We are introducing a new approach for the Silta token model. This will make it easier for borrowers to access the $250bn+ of liquidity already locked in the DeFi market. The refined structure also makes it possible for existing DeFi protocols to offer their users an opportunity to invest in infrastructure and other real-world assets. In this blog, we explain how we see the new model functioning.
Editor’s note: Since the time of writing, we have updated the Silta approach. Some of the information in this article may be out of date. Please read the latest information here.
Silta is developing a protocol which connects the liquidity of decentralized finance (DeFi) in funding new and environmentally friendly infrastructure assets and other kinds of commercial development globally. By simplifying and automating the process, Silta reduces the overall cost of assessing ESG conscious infrastructure projects and gives faster access to funding for borrowers (project companies).
For investors, Silta gives access to real-world assets, a respectable return on capital, a lower risk profile, and an opportunity to support the social and environmental good. In this way, Silta is helping DeFi protocols to take their lending solutions mainstream.
Over the past weeks, we’ve been hard at work on planning the Silta solution in more detail. The work is progressing on multiple fronts, and we are constantly looking for opportunities to improve the solution and make use of the latest developments in Web3. For now, we’d like to focus on one specific area, i.e. the implementation of Silta loan pools.
What we have converged on is an evolution from the design laid out in the Silta whitepaper. The new approach uses the Silta token as collateral in third-party loan pools. This makes Silta compatible with existing DeFi protocols such as Rari Capital, Compound, Aave, and others. With the new model, borrowers will be able to access the $250 billion plus (at the time of writing) of value locked in the DeFi market.
How the new Silta token model will work
Although the details may well change as we work through the final refinements, this is how we see the new model functioning.
- On the community’s approval, Silta DAO provides the necessary collateral on behalf of the borrowers for use in third-party DeFi loan pools.
- The tokens used as collateral come from the Silta DAO’s treasury, but new tokens can be minted when needed. The collateral tokens do not, under normal circumstances, enter in circulation.
- A legally binding collateral agreement is signed between the borrower and the security agent, i.e. an independent company acting on behalf of the DAO.
- Assuming the loan is repaid as intended, the collateral Silta tokens are burned and the borrower is freed of any remaining contractual obligations.
- Should the borrower default on its loan, the Silta tokens used as collateral are liquidated to repay the lenders, and the security agent pursues the borrower for repayment.
- The funds recovered by the security agent are entered into the DAO treasury.
The chart below summarises the new token model.
And here is a short video which explains how the process will work:
What we are proposing is a leap forward when compared to a typical structure used in the existing DeFi loan pools. As it is, most loan pools are heavily overcollateralised with typical collateralisation ratios ranging from 150% to 200% and more. This is obviously a challenge for infrastructure borrowers (or for that matter, for anyone looking to borrow from a crypto loan pool) — it is a rare case where having to put down 20 million in collateral to borrow 10 million makes sense. On the other hand, borrowers in project finance are familiar with having to put up real-world collateral, loan covenants with step-in rights, and government guarantees where possible. In Silta, the loans will still need to be properly collateralised, but the new model provides a way to use real-world assets to back infrastructure investments.
We are in promising discussions with a well-known DeFi lending protocol and building on their technology as we’re moving on to the implementation of the new model.
To recap, this is what we do: Silta is the collateral bridge enabling infrastructure and commercial developers to access liquidity within the existing DeFi protocols. If you have questions or wish to comment on this post, do engage with us on Telegram.
We will be updating our whitepaper and website shortly to align with this new approach. If you are interested in following our progress in making Silta a reality, be sure to follow us on LinkedIn, Twitter, Facebook, and Youtube, join us in Telegram, and sign up to our newsletter at silta.finance.
Disclaimer: This article is for informational purposes only and is not intended as any kind of investment advice. Read our full legal disclaimer here. For further information, email us at contact@silta.finance.
