Tectonic Isolated Pools
Why isolated pools and how does it work?
In our last roadmap update, we mentioned that Tectonic is working on Isolated Pools.
Today we are excited to share that the Isolated Pools feature is almost ready. We have sent the contract for audit and are in the final stages of testing.
We like to take this opportunity to share with you why Tectonic is building Isolated Pools, how it works and how it will bring Tectonic to the next level.
Expanding Markets
Lending and Borrowing are the core functions of Tectonic. To build up a vibrant money market, there needs to be frequent addition of crypto assets, expanding the markets. This provides more choices for users thus adding liquidity to the protocol.
Tectonic is the leading money market on Cronos and builds on the foundation of a Single Cross-collateral Pool.
In a Single Cross-collateral Pool, all assets are stored in a single pool, users can deposit supported assets to earn interest or borrow.
However, when it comes to adding new token listings, it also comes with respective risks and challenges that must be considered before being implemented.
This is because smaller cap tokens with lesser liquidity on-chain and higher volatility are especially prone to high fluctuation (and even price manipulation) which introduce risk to the entire protocol’s TVL. Due to these concerns, we have been conservative in listing smallcap tokens and instead prioritized blue-chip assets with deep liquidity and reliable price oracles.
Isolated Pools
Isolated pools allow Tectonic to have multiple lending markets, each supporting a specific subset of assets. This enables the protocol to contain the risk for each pool and have the ability to list smaller cap tokens.
You can think of Tectonic as a big complex and within it contains different pools.
It contains the Main Pool which is what we have now. It will also be adding Isolated Pools. In each Isolated Pool, there will be a specific subset of assets.
For example:
In Isolated Pool 01, it contains SCT01 (a made-up token with low liquidity) and USDT.
Users will be able to supply SCT01 and borrow USDT or supply USDT and borrow SCT01.
Since SCT01 has low liquidity, it allows for easy manipulation. Suppose SCT01’s price is being manipulated and increased in value. SCT01 tokens are deposited and used as collateral to borrow all available liquidity.
In this case, the value at risk is all of the available USDT within the pool.
With isolated pools, this risk is contained and limited to the pool. It does not affect the whole protocol. You can also think of isolated pools as a sandboxing zone for smaller caps tokens.
Single Cross-collateral Pool vs Multiple Isolated Pools
Here is a table to help you understand better the difference between our current mechanism Single Cross-collateral Pool vs Multiple Isolated Pools:
Benefits to Tectonians
- More options — Isolated pools offer a higher degree of choice to the users. This will open doors for us to launch more customized and thematic options for the community. Since each pool may have different parameters, users can choose to invest in the pool based on their risk appetite and choice of assets.
- Security — Isolated pools provide an added layer of security to users. The value at risk is completely limited to the pool in question, safeguarding assets in other pools. Of course, there are always risks involved so DYOR.
- Capital efficiency — With Isolated Pools, there are opportunities to push for more aggressive parameters within the pool, such as pushing LTV up to 90% for better capital efficiency
We cannot contain our excitement so here is a preview of our mockup. *
We are excited about this feature and we believe this will accelerate the growth of Tectonic.
We also love to hear from you on new listings and pool ideas. Come join our discord and stay tuned for the launch date.
