TomoDEX Introduces Lending Features
Over the past couple of years, it has become much easier for cryptocurrency users to earn a return on their holdings, as a number of new crypto lending platforms have popped up.
Cryptocurrency lending platforms operate essentially as brokers between lenders and borrowers. They allow users to either lend their cryptocurrency holdings, or borrow from others. Additionally, these platforms often offer users the ability to borrow fiat currency against their cryptocurrency holdings.
TomoDEX is truly a P2P lending platform
Most existing lending platforms are not peer-to-peer. These platforms could be classified into:
- Custodial: These are centralized platforms that allow traders to collateralize various crypto assets such as BTC, ETH.. to borrow stable coins such as USDT. The downside of these platforms is obviously the centralization part as borrowers basically have to interact with centralized custody in a trusted manner.
- Non-custodial: Some DeFi applications on Ethereum, such as Compound, have a lending pool allowing anyone to borrow/lend crypto assets in a decentralized and trustless manner. However, lenders and borrowers do not interact with each other, but through a broker — the lending pool instead. The interest rate is algorithmically changeable based on the liquidity of the pool and the smart contract used.
TomoDEX offers a legit lending platform:
- TomoDEX is non-custodial: No centralized parties hold the funds of lenders and borrowers.
- TomoDEX offers P2P lending platform: Lending/borrowing via lending pools is a great concept but it does restrict the flexibility of the interest rate. TomoDEX, with a decentralized loan matching engine powered by TomoX, is a loan-like marketplace platform where lenders and borrowers match their loan contracts/orders with their expected interest rates.
By allowing users to set their interest rates, TomoDEX is truly based on market demand driven by human behaviors. The market includes both users who would be willing to accept low enough interest but also some who would borrow with high interest during the high demand period. We believe this is how a natural lending platform should work to connect lenders and borrowers, instead of having an algorithmic interest rate which does not fully reflect the market.
TomoDEX liquidity is provided by various means through TomoX’s giant liquidity order book, allowing any lenders and borrowers from different relayers to set their loan contracts in a decentralized manner through a loan matching engine.
Incentives for lenders and borrowers
- For lenders: Lenders in any market are always driven by an interest rate. In most existing platforms, lenders have to build their own platform with their own interest rate for borrowers or have to use a lending pool that provides an algorithmic interest rate. Moreover, building a lending platform is costly and consists of legal concerns. Understanding these issues, TomoDEX offers a ready-to-use P2P lending decentralized platform that allows any lenders to set their expected interest rates without fearing legal issues. Safety and security are validated and verified by the TomoChain masternode network which has been battle-tested. In the case when borrowers don’t repay the loan when it expires, a penalty of 10% of the loan amount is applied and sent from the borrower to the lender. This is to ensure that lenders always earn interest through lending their assets on TomoDEX.
- For borrowers: Very similar to lenders, the advantage of TomoDEX is to allow borrowers to borrow USDT with their affordable interest rate that is available. Borrowers need to collateralize 150% value of the crypto assets they want to borrow. To secure the collaterals, TomoX P2P Lending is designed to check the collateral price every 2 seconds (will be explained in detail during the next sections).
It is worth noting that due to TomoX’s great liquidity pool, users on TomoDEX can lend to/borrow from users on other TomoX relayers.
The liquidation process is applied when either:
- The value of collaterals falls below 110% of the loan value. The value of collaterals is computed using the token price data point from TomoX, which allows users to check collaterals value every 2 seconds. Once this occurs, the entirety of the collaterals will be released to the corresponding lenders.
- The borrower does not repay the entirety of the loan value. Once this occurs, a penalty of 10% of the loan value is applied to the borrower. It means the lender would receive a value of 110% (100% for the original loan amount + 10% penalty)+ interest rate of the loan amount in the asset that was collateralized by the borrower. For example, Alice lends 1000 USDT to Bob who collateralizes his 2500*1.5 TOMO (assume that 1 TOMO = 0.4USDT) to borrow USDT. If Bob does not repay 1000 USDT after 1 week (assume that the loan contract term is 1 week), Alice would receive 2500 TOMO (if 1 TOMO = 0.4 USDT at this event time) + 2500*10% + interest.
Securing borrowers’ collaterals
The ability to check collaterals value every 2-second is a major advantage of TomoDEX compared to all existing lending platform based on Ethereum.
Ethereum-based Lending applications such as Compound uses an external oracle source to periodically push token price to the applications to check the value of collaterals. In the event of network congestion, the oracle transaction might be pending due to high network transaction fees. Due to the delay in transaction processing, the oracle transactions would not be processed on time but at a later time when the price data point in the transaction is no longer the current token price. This caused the MakerDAO contract to liquidate a large amount of collateralized ETH.
Due to the nature of TomoX , TomoDEX and all lending applications based on TomoX can solve the liquidation problem in Ethereum-based lending applications, since its token price is checked by all masternodes every two-second.
Topup & Auto Excess Recall
- Topup: When the value of collateral becomes close to the liquidation value (110% of the loan value), the masternode network will automatically take the funds from borrowers’ address (if any) and add it to the collateral. This helps avoid liquidating the collateral due to collateral value crash, thus allowing borrowers to secure their collaterals. This is obviously an advantage compared to DeFi applications on Ethereum because Topup is done at the consensus level, avoiding any delays or network congestions that delays Topup transactions, resulting in collateral liquidation.
- Auto Excess Recall: The collateralized asset will be recalled as an amount to the borrower’s wallet if the market price of the collateralized asset rises above the recall price. The recall price is now by default 200% of the liquidation price. Once occurred, the liquidation price will be recalculated based on the current market price of the collateral.
Developing a decentralized lending platform and making it work right in a blockchain environment is not an easy task, due to many problems including timing and network congestion. Understanding those issues in most existing lending applications, TomoDEX has been developed to resolve those inconveniences by integrating lending core features in the consensus network to secure all funds from lenders and borrowers.
With the mechanism incentive design for lenders and borrowers, and a lending matching engine powered by TomoX protocol, TomoDEX and TomoX relayers in general expect to become a competitor to all existing crypto lending applications.