Introducing Wanlend V2, the WAND token and governance
Since Wanlend went live last December, we have attracted thousands of users, and the combined supply and borrow asset values have increased to $15 million to this date. Currently, there are 10 assets available on Wanlend, covering major coins and tokens¹ such as BTC, ETH, XRP, USDT, USDC, LINK, UNI, SUSHI, as well as Wanchain ecosystem assets WAN and WASP.
We would like to take this opportunity to thank our loyal community members and users for their supports. It is evident that Wanlend cannot grow to today’s size without them. Hence, it is also our team’s top priority and core value to hear the users’ opinions and feedbacks and adjust our product accordingly.
Increasingly, users ask about the next steps for Wanlend. We hear that and the update has been in the plan for months. However, the recent exploitations² of lending platforms have slowed things down and we had to adjust the new protocol to make funds safer. In some sense, we are fortunate to learn from these exploitations so that similar problems can be avoided in the new Wanlend protocol. After a few more months of intense work, we are excited to announce Wanlend V2, the next-generation crosschain money market protocol. The new protocol is built on top of the experiences from our previous Wanlend V1 protocol and the well-established Compound protocol³.
Launch date and time
Wanlend V2 will be online on 08/09/2021 at UTC 6:00 AM (~block 16059711) and the reward of governance tokens (see below) will start on 08/12/2021 at UTC 6:00 AM (~block 16111551). Users will have three days to move assets and loans from V1 to V2 and enjoy the reward!
Why lending and borrowing?
The market can be irrational. This is especially true for the crypto market. At its core, the lending and borrowing protocol captures the time value of the assets. Hence if users can time the market, they can profit even in a bear market. For example, if a user holding USDT predicts that BTC will go down in price in the future, he/she can borrow BTC (using USDT as collateral) and sell it right away. Once the BTC price drops, the user can buy BTC back at a lower price and repay the loan, leaving net gains. With the lending protocol, users can essentially short the market without having to sell their original assets. Similar profit logic can apply in a bull market. The lending and borrowing money protocol is an essential tool for Defi to approach the adoption level of the traditional financial system.
The Wanlend V2 protocol
Pool-based liquidity
Like Wanlend V1, Wanlend V2 features a pool-based lending and borrowing mechanism, as shown in Figure 1. Users can supply any supported assets to the liquidity pool, and in return, the users will get interests. On the other hand, the supplied assets can be used as collateral for borrowing other assets from the pool. The pool-based strategy is superior to a contract-based strategy where lenders and borrowers have to agree on the terms of the lending contracts. In the pool-based strategy, users can supply and withdraw⁴ their assets at any time. The lending asset amount, loan expiration date, and interest rate are all flexible, driven by the economic activities of the overall market.
Interest rate
The interest rate determines the profit of asset suppliers and the cost of borrowers who want to profit from the market movements. In Wanlend V2, we will use a jump interest rate model as in Compound³.
The interest rate is a function of asset utilization rate f, defined as the ratio between borrowed assets and overall available assets in the pool. To incentivize borrowing from the protocol, the interest rate increases relatively slowly at low asset utilization, until f reaches 80%, as shown in Figure 2. Afterward, the interest rate increases fast, giving more incentives to asset suppliers. With more users supplying assets, the pool liquidity increases, which attracts more users in return.
Risk of borrowing, a.k.a. liquidation risk
Assets borrowers can potentially earn significant profit from market movements. However, like any other high-return investment, the risks are also higher. When the borrowed asset value appreciates or the collateral value depreciates to the point that the collateral is not enough to match with the borrowed assets, liquidation occurs. To prevent liquidation, the borrowers can add more collateral, repay the loan using other funding, or having part of the collateral liquidated (e.g., 50%). In the case of liquidation, a third party, namely the liquidator, can repay up to 50% of the loan and get part of the collateral at a discount (e.g., 8%). For example, a user supplies 100$ and borrow 70$. Assuming the collateral factor to be 80%, if the collateral value decreases to 87.5$, the liquidation can occur, and the liquidator can repay 35$ of the loan to get ~38$ of the collateral. Afterward, the user still has 49.5$ of the collateral and 35$ in loan. The liquidation reduces the loan-to-collateral ratio to 70.7%, well below the 80% collateral ratio. The liquidation mechanism makes sure that the protocol is safe to operate with optimal solutions for all participants in all market conditions.
The WAND token and governance
In an effort to shift the Wanlend project from a team-controlled project to a community-driven decentralized autonomous organization, we are introducing the WAND governance token and the governance protocol. The WAND token will be the only utility token for the Wanlend community.
WAND distribution
A total of 210 million WAND will be mined over ~3 years and the distribution is shown in Figure 3. 85% of the tokens will be distributed to the users, including 3% to the Wanlend V1 participants and 82% to the Wanlend V2 participants. The remaining 15% will be used for project developments including funding for devs, marketing, and partnerships. The Wanlend team will take snapshots of V1 usage based on the last block of 7/31/2021 UTC time and the tokens will be claimable to the users after the V2 launch for a time window of 3 months.
The token emission follows a decreasing model similar to BTC. Initially, ~16.6 WAND/block will be distributed as the mining reward, and the rate decreases by 25% every 6 months.
Wanlend governance
WAND holders will be able to submit community proposals, delegate their voting rights, and vote for decisions to move the project forward collectively. The following is a partial list that the community can decide on in the governance.
- Interest rate model parameters
- Collateral factors for assets
- Addition of new assets
- New functionality of the protocol
- …
Many more on the governance are in the works and will be released when more information is available.
Summary and future directions
Wanlend V2 is the first-of-its-kind crosschain money market. Leveraging Wanchain’s crosschain capability, fast blockchain, and low cost, we will explore many more and novel functionalities to include in our dAPP. In the long term, we aim to be a Defi super dAPP that builds on top of the lending protocol and develops easy-to-use and highly profitable functions for our users.
[1] The coins and tokens are wrapped assets on Wanchain, in the form of wanTokens, e.g., wanBTC, wanETH, wanXRP, etc.
[2] https://cryptonews.com/news/two-more-binance-smart-chain-projects-report-incidents-price-10385.htm
[3] https://compound.finance/
[4] In the case of withdrawal, the pool needs to have the withdrawal asset available.
