The rise of new lending forces: New public chain VS Ethereum
Research institution: Mint Ventures
Researcher: Xu Xiaopeng
The last update time: 2021.9.16 21:15
1. About #track scanning
This research report belongs to the #track scan series of Mint Ventures. Compared with the #in-depth research report series with comprehensive analysis of individual projects, the focus of the #track scan serie is to pay attention to the development trend of the track and find representative projects for horizontal comparison, thus grasping the dynamics and potential projects of each track in the crypto business.
This is also our new attempt. Welcome to leave your feedback in the comment area.
This issue of #track scan focuses on the lending track, especially the development and gaming trends of lending projects between the new public chain camp and the Ethereum camp.
Lending projects are one of the oldest and most important sectors in the DeFi field, including a large number of white horse projects such as Aave, Compound, and MakerDAO. Most of the early leading lending projects were born in Ethereum. However, with the rapid development of various new public chains in the past six months, a large number of lending projects deployed in new public chains and multi-chains have emerged.
In addition to the differentiation of public chain deployment, the business types of lending projects have evolved from basic lending and stablecoin lending to new businesses such as leveraged mining lending with targeted scenarios. In addition, credit lending mainly for institutional-level customers, risk classification protocols derived from existing lending protocols, and interest rate derivatives are also gradually growing.
Although many lending projects already have relatively mature business models and abundant cash flow income, there is still huge room for innovation in this industry, and new giants like Aave are still possible. For this reason, lending projects remain a focus of DeFi entrepreneurial teams.
After scanning the newly-born projects in the past 2 months, we selected 4 representative lending projects for key analysis. They either have rapid business explosion or have unique mechanism innovations. Through this research Report, we try to answer the following questions:
• What is the actual business situation of these projects?
• What innovations in product positioning, mechanism or token design od they have?
• For those fast-growing projects, what are the sources of their growth and how sustainable are they?
2. The track value of the lending business
Like trading platforms, lending project is also the basic liquidity layer in the crypto world. It plays the role of a bank in the crypto world. In essence, it coordinates the supply and demand of funds from multiple parties while matching liquidity across time periods. The business ceiling of this track will expand simultaneously with the expansion of crypto business scale.
On the other hand, the demand for fund matching is long-term, thus there is no doubt about the sustainability of this track. Although the current funding demands for crypto lending mainly come from investment leverage, arbitrage, and short-term capital turnover, the channel between the traditional world and crypto finance will eventually be opened with the progress of compliance. Then the introduction of real-world collaterals (such as real estate, corporate debts) into lending platforms, and the issuance of loans to non-crypto players through stablecoins are all things that are gradually happening, which will bring greater room for development to the industry.
Whether as entrepreneurs, investors or ordinary users in this industry, the track of crypto lending is far from the final form. There are still a large number of new products and rich investment opportunities worthy of our expectation.
3. Overview of the lending market
As of September 16, 2021, Defi’s total TVL has reached its highest level since May at US $180 billion. Among them, although the TVL proportion of lending projects has declined, they still account for the majority, with TVL of approximately US$50 billion.
Top 15 lending protocols based on TVL (not including Makerdao, Liquity), data source: DefiLlama
In terms of outstanding loans, the current outstanding loan amount of all lending protocols is about US $30 billion.
Total borrowing volume of lending protocols, data source: Debank
In terms of business volume, established projects Aave, Compound and MakerDAO remain firmly in the top three, with their TVLs accounting for more than 70% of the entire lending market.
However, the rise of emerging lending projects is also amazing. The top ten projects in TVL include Anchor on Terra (US $3.12 billion), Benqi on the Avalanche protocol (US $1.23 billion), and Qubit (US $400 million) on BSC. Different from the big three lending giants originated from Ethereum, these fast-growing lending forces all come from Ethereum’s competitor, which is the hottest narrative at the moment — the new public chain.
More surprisingly, in addition to the earlier launch of Anchor (in March this year), the official launch time of the other two projects is only less than one month.
In terms of the types of lending business, regardless of the number of projects or the amount of capital, basic lending projects account for a higher proportion, followed by leveraged mining lending projects, and other relatively new businesses such as risk-classified interest rate products are small.
This research report will focus on newly-born lending projects in the past 1–2 months with rapid business growth (their TVLs have entered the top 15 lending category), as well as Euler, a project with many innovative combinations in mechanism.
Specifically, it includes:
The following is a detailed review and analysis of each project.
4. Comprehensive analysis of each project
In this part, the author will exhibit and analyze the four projects from the perspectives of product positioning, project feature, business situation, token model and risk control, in order to analyze these four emerging lending projects as a whole as possible.
4.1. Qubit
4.1.1. Project situation
Product launch date: August 24, 2021
Qubit is a decentralized currency market that uses a mainstream lending and borrowing pool model. Qubit is developed and operated by Mound, the team behind Pancakebunny. It was first deployed on BSC, with plans for multi-chain expansion in the future.
4.1.2. Project features
The main features of Qubit compared to other basic lending projects are:
· Its token QBT can increase the return rate of deposit users after lock-up, which is called “Boost” function
· Qubit is part of Mound’s product matrix, and Mound’s products have strong combination
· Qubit does not support flash loan function
4.1.3. Business situation
4.1.3.1. Business data
Qubit’s core business data are as follows:
We can find that although the project of Qubit has been launched for less than a month, it currently has a considerable amount of deposits and high fund utilization rate. This is related to Bunny’s previous accumulation of a large number of BSC users and the relatively high amount of token subsidies for the project. Currently, the daily subsidy amount of QBT is around US $190,000.
4.1.3.2. Product UI\UX
Qubit’s product UI style is simple and clear, with smooth interaction. Its key data display is reasonable and detailed, and the overall user experience is good.
Main interface of Qubit products, https://qbt.fi/app
Moreover, the current business data and risk parameters of Qubit’s specific assets are very detailed and graphically processed, with some historical data available. This should be appreciated.
Qubit’s specific asset data, https://qbt.fi/market/BNB
4.1.4. Token model
4.1.4.1. Total amount of tokens and supply
The total amount of QBT is 1 billion, of which 57% is used for liquidity mining rewards, and the remaining 43% is controlled by the team. The specific distribution ratio is as follows:
QBT distribution ratio, source: Qubit project document
The total amount of 1 billion QBT will be distributed within one year, so QBT will face very high inflation pressure in the next 12 months. The specific pace of token unlocking is as follows:
In my opinion, there are two core problems in the supply and release mechanism of Qubit tokens:
· The proportion of team control is relatively high, and most of them have not set strict token unlocking conditions, resulting in insufficient long-term binding between team interests and the project
· The tokens of the liquid mining part are released too fast, which may cause the project to lack sufficient subsidy budget after one year. This is not conducive to the long-term development of the project
4.1.4.2. Token value capture
Core function: revenue acceleration
Up to now, the main function of QBT is to obtain qScore after lock-up. Through qScore, deposit users can accelerate their deposit returns (from the increase of QBT deposit subsidies).
This mechanism is similar to Curve’s Locker mechanism. Curve’s Locker function and economic model have consolidated its original competitive advantage and increased the switching cost of liquidity providers and investors, which is quite a eye-catching design. However, when the mechanism is applied to the lending protocols, will it still have a good effect? The author remains skeptical about this.
First of all, the reason why some people are willing to buy Curve’s token CRV and then lock up the position for a long time is caused by Curve’s strong position in the stable asset business chain and the competition for the governance rights of Curve by multiple participants. Because governance rights on the Curve platform mean two core resources: the baton of liquidity and the accelerator of revenue.
Since the issuers of stable consideration assets (stablecoins, stETH and other pledge certificates as well as renBTC and other BTC cross-chain assets are all stable consideration assets) have great requirements for the stability and transaction depth of their operating assets, it is a very rigid demand for them to choose Curve to list assets and attract market-making liquidity. This results in Curve’s strong position relative to asset operators, which is determined by its business positioning as the Top1 stable asset exchange platform.
PS: For Curve, you can read our in-depth research report to learn more:
In terms of the expansion of asset lending scenarios, the demand of asset operators is far from being so strong. This has led to a large decline in the demand for Qubit governance rights, and the overall lock-up willingness is difficult to reach the level of Curve.
In addition to the revenue acceleration function of QBT, it has no other function scenarios now, and the lending interest rate spread income of Qubit platform also has no buyback or dividend mechanism of QBT.
On the whole, QBT tokens are currently weak in capturing the overall economic value of the platform.
4.1.5. Risk control
Qubit has no special design in risk control. It basically adopts an approach similar to the mainstream lending protocol Aave. Each mortgageable asset has two main parameters: LTV (Loan-to-Value, borrowing ratio) and liquidation threshold. The former determines the upper limit ratio at which fixed-value collateral can be lent, and the latter determines to enable the liquidation window when the ratio of debt to collateral is reached.
However, the current borrowing ratio of all Qubit assets is consistent with the liquidation line, instead of Aave’s method that the liquidation line is higher than the borrowing ratio.
LTV and liquidation line parameters of Aave platform assets, source: Aave document
LTV and liquidation line parameters of Qubit (data not updated), source: Qubit document
At present, the borrowing rate of most assets on Qubit is 60%, slightly higher than the initial 50%. While this reduces the risk, it also reduces the stakers’ fund utilization efficiency to some extent, especially when the mortgage rate of all stablecoin assets is only 60%. The overall parameters still have a lot of room for optimization.
In terms of contract security, Qubit has only one audit report from Peckshield before it was launched in August, which was not enough strong, whereas the oracles use Chainlink.
4.1.6. Summary
Since the launch of Qubit, the growth rate of total deposits and TVL was once very fast. The product has complete data kanban function, with smooth product interaction and beautiful interface. However, overall it has not too many innovation points. As the token price continues to fall and the subsidy is diluted by funds, the TVL of this project is also falling significantly. It is worth noting that, compared with other lending projects’ tokens that capture the cash flow of the protocol as the core value source, Qubit tokens are not currently pegged to the project profit. The only function is to increase the token subsidy of deposits through lock-up. This has also resulted in a weak intrinsic value of project tokens, and the high inflation of tokens has further aggravated the selling pressure of tokens.
4.2. Euler
4.2.1. Project situation
Product launch date: not launched
Euler is a permissionless lending protocol developed on Ethereum founded by Michael Bentley, a researcher at Oxford University. The development company is Euler XYZ. Euler XYZ won the Encode Club “Spark” university hackathon in 2020, followed by a $800,000 seed round led by Lemniscap, with other participating funds such as LAUNCHub Ventures, CMT Digital, Difference Ventures, Block0 and Cluster, as well as influential Coinbase angel investor Luke Youngblood. On August 25, 2021, the project announced a new US $8 million investment round led by Paradigm, and other investors include Lemniscap and individual investors, such as Anthony Sassano (The Daily Gwei), Ryan Sean Adams and David Hoffman (Bankless founders), Synthetix founder Kain Warwick, as well as Hasu (Uncommon Core podcaster).
4.2.2. Project features
In response to the many shortcomings of existing lending projects, Euler has carried out a considerable number of product mechanism innovations. Due to space limitations, this report will only introduce the key parts:
Permissionless listing mechanism: Provide a lending platform for long-tail assets
Compared with the licensing system currently adopted by mainstream lending platforms, the introduction of assets on the Euler platform does not require a license, as long as the assets have a WETH trading pair on Uniswap V3. Of course, in order to protect users from the risks of low liquidity and violent fluctuations in long-tail assets, Euler divides assets into three categories based on their risk:
· Isolation layer assets: Users can deposit or lend assets, but cannot use the isolation layer assets as collateral. In addition, if they want to borrow different isolation layer assets, users need to use different accounts on Euler to isolate the risks between different assets.
· Cross tier assets: It can be used for ordinary lending and cannot be used as collateral, although users can borrow multiple cross tier assets with one account.
· Mortgage tier assets: The assets in this layer are similar to those of most mainstream lending platforms. They can be used for ordinary lending, cross-borrowing, or as collateral. Cross-borrowing means that users mortgage assets in one account to borrow multiple mortgage tier assets.
By isolating assets with different risk levels, Euler attempts to increase the asset classes it supports on the one hand, and on the other hand to ensure that high-risk assets do not affect the security of mainstream assets.
Adopting dynamic interest rate model: Improve the sensitivity and accuracy of interest rate pricing
This model is similar to the “dynamic interest rate model” designed by Delphi Digital for Terra ecology’s lending protocol — Mars Protocol. On the one hand, it improves the sensitivity and accuracy of interest rate pricing, and at the same time, it can obtain higher interest income for depositors and the protocol itself.
Simulation of the interaction between the fund utilization rate and the borrowing rate in the Euler protocol, source: Euler blog
To put it simply, this interest rate model is adjusted on the basis of mainstream lending protocols such as Aave. By adjusting the fund utilization formula, the interest rate can be more sensitively adapted to the real capital supply and demand situation of the market in real time, instead of the linear way of raising interest rate in the existing mainstream interest rate model. This can prevent the situation when a lending protocol can only see users borrow money on its own platform with low cost and then deposit them on other platforms to obtain high mining profits for arbitrage. This will lead to the situation that borrowers to have no incentives to provide loans and lenders are unwilling to repay as soon as possible, eventually exhausting the liquidity of the lending protocol. The dynamic interest rate model aims to solve this kind of problems.
For more information on the Euler dynamic interest rate model, please refer to “Introducing Euler” in the section of “Reference”.
Numerous improvements in the liquidation mechanism: optimization of the liquidation threshold, anti-MEV, internal multi-collateral pools
i. Customize the threshold of asset liquidation based on the combination of mortgage rate and borrowing rate
Like mainstream lending protocols, Euler requires users to ensure over-collateralization, that is, the value of assets is greater than the value of liabilities. When the value of liabilities exceeds a certain ratio of the collateral, it will allow the liquidator to liquidate the mortgagor’s assets. But in terms of the calculation of debt value, Euler also introduces the concept of borrowing factor, in which the liquidation threshold of each borrower is tailored to the specific risk profile associated with the assets they borrow and use as collateral. In other words, when the value of the borrower’s risk-adjusted liabilities exceeds the value of the collateral, it may be liquidated. Specifically, compared to the original lending mechanism, Euler’s mechanism also adds a multi-dimensional risk assessment of liabilities, further improving the margin of safety in liquidation.
ii. Anti-MEV
At present, the mainstream lending protocols such as Compound mainly adopt the liquidation incentive model, in which the liquidator can purchase the mortgagor’s assets with a fixed percentage discount. Under this mechanism, all liquidators face the same liquidation opportunity with the same potential profit percentage, so they can only compete for liquidation opportunities by raising gas. Here the high MEV value (Gas cost) becomes the additional cost of liquidators, increasing the risk of the system. On the other hand, for mortgagors, the fixed discount rate for assets at auction also deprives them of the opportunity to settle for a lower penalty.
In response to this problem, Euler adopts the Dutch auction in liquidation, which can alleviate the joint bid of liquidators and may also obtain lower asset liquidation losses for mortgagors. At the same time, Euler also provides a discount acceleration mechanism for the collateral provider, which makes him eligible for self-liquidation before the liquidator conducts the Dutch auction to reduce the loss of the mortgagor. The above two measures are intended to restrict miners from grabbing excessive MEV fees in liquidation, so as to improve the overall security of the system in a liquidation storm.
iii. Use internal multi-collateral stability pools for liquidation
In order to further reduce the transaction costs of liquidators in liquidation, Euler also borrows the stability pool model pioneered by the Liquity protocol and expands it into a multi-collateral stability pool form, allowing lenders to support clearing by providing liquidity to the stability pool of each loan market.
PS: For the detailed research report of Liquity, you can read our research report to learn more:
“Liquity: a rising star in stabilizing the currency market”
Liquidity providers in the stability pool earn liquidation collateral rewards by depositing eToken (a deposit certificate of the Euler protocol, similar to Compound’s cToken). When the liquidation proceeds, the liquidator directly uses the liquidity from the stability pool to repay the debts of borrowers, while rewarding the share of clearing collateral obtained to the stability pool proportionately. That is, the lender will eventually be able to passively convert its tokens into clearing collateral asset during liquidation.
For example, Euler provides a stability pool for USDT that lends assets. A lender who is willing to participate in the stability pool can deposit their own USDT deposit certificate eUSDT into the stability pool as the counterparty of the liquidator. In this way, the liquidator replaces the collateral assets with the deposit users of the stability pool at a discount price (after deducting his own earnings) after the mortgage asset is auctioned. This is equivalent to that the users of the stability pool purchase the collateral at a discounted price.
While Liquity only supports the LUSD stability pool, the specific token types included in Euler’s multi-token stability pool have not been disclosed, but it is believed that it will still be mainly stablecoins or mainstream coins.
The advantage of adopting this mechanism is that the protocol believes that, when a borrower reaches the liquidation threshold, the liquidator can use internal liquidity sources to liquidate immediately, without the need to exchange assets from a third-party trading platform. This greatly alleviates the transaction cost of the liquidator, the inconsistency between the internal clearing price and the external platform price when the market fluctuates sharply, and the loss or failure of the liquidator caused by too high trading slippages.
In addition, Euler does not plan to use an external oracle, but to use the time-weighted average price (TWAP) of assets on Uni V3 and WETH to measure the ratio of assets to liabilities.
4.2.3. Business situation
At present, Euler has only released its white paper and project documents, and its product has not yet been officially launched.
Current product page of Euler
4.2.4. Token model
Based on the information that Euler has released, it has not disclosed the total amount of its governance token Euler, the distribution method, and the unlocking time. But, the functions and scenarios of its tokens are preliminarily outlined. Euler will follow Compound’s governance paradigm, with various governance functions that can determine the level of assets, important parameters of the protocol, and the framework of governance itself. In addition, Euler also has a Vault mechanism, which can ensure the security of the protocol through staking.
4.2.5. Risk control
Since the product has not yet been launched, the risk parameters of project assets and other information have not yet been disclosed. In terms of contracts, Euler has officially disclosed three contract security partners, including Certora, Halborn, Solidified and ZK Labs (the two work together to issue reports), and it have obtained two contract audit reports. Due to the introduction of many innovative mechanisms in Euler, the amount of native code is also large. Contract security is the top priority, and the team still attaches great importance to it.
4.2.6. Other
Euler is committed to becoming a Uniswap in the lending field, providing lending liquidity and composability for more long-tail assets with a strong background of investors. The protocol has introduced many innovative mechanisms to address the shortcomings of current lending protocols, but the practical effects of these innovations remain to be seen as the protocol has not been launched. There is still no clear timetable for the launch of the project, but Chris, the administrator of the Chinese community (the well-known crypto KOL “@区块先生”), said that more news may be disclosed in September.
4.3. Beta Finance
4.3.1. Project situation
Product launch date: August 17, 2021
Beta Finance is a decentralized permissionless lending platform incubated by Alpha Finance. Its characteristics include that users can spontaneously establish currency asset pools, and it focuses on the long-tail asset market and scenarios of asset shorting.
Beta Finance received a strategic investment in July this year. Investors include Spartan Group, ParaFi Capital, Multicoin Capital, DeFiance Capital and Delphi Digital. Generally speaking, the investors have a pretty good background.
4.3.2. Project features
Compared with the current mainstream lending platforms, Beta Finance has the following characteristics:
i. Permissionless money market
Like Euler, Beta Finance also pays attention to the long-tail lending market outside of mainstream assets and regards it as the main target market. Users can freely create asset classes that are not currently available in Beta Finance to lend their crypto assets, although this feature is not available yet.
ii. Provide convenient experience of asset shorting
Through Beta Finance, users can short an asset with one click by borrowing. Although users can also lend assets to short on other lending platforms, there are two main problems:
a. The operation is cumbersome, requiring mortgaging assets, lending short assets, and selling short assets on DEX, so it has high time and contract costs.
b. Mainstream lending platforms only support mainstream assets, with very small range of choices. In addition, the price fluctuation of mainstream assets is small, so the potential profit space for short-selling is insufficient.
Beta Finance fits the needs of users on these two points.
First of all, it provides a one-click short-selling interface for short sellers. Users can quickly select their collateral and objects for short-selling. Beta will automatically borrow the corresponding short assets through its own currency market and sell short on the selected DEX, and then continue to include the assets obtained from the sale in the collateral to reduce risks. In this process, users do not need to interact with multiple protocols, thus saving high gas fees and avoiding rush in the face of unexpected market opportunities.
The short interface of Link on Beta finance
In addition to the improvement of short-selling experiences and the reduction of costs, Beta Finance’s permissionless feature and product positioning focusing on long-tail assets also mean that short-sellers will have a wider choice of non-mainstream assets on Beta Finance in the future. These non-mainstream assets often have more extensive short-selling or hedging needs.
4.3.3. Business situation
The current core business data of Beta Finance are as follows:
We have seen that despite the short launch time of the product, the TVL of the project has risen rapidly. On the one hand, Alpha has endorsed the project, and on the other hand, the official also publicly stated that it would carry out airdrops for deposit/borrowing and short-selling users, which will also bring a lot of funds to the project. However, the fund utilization rate of Beta Finance is currently low.
Among all the listed assets, USDC ranks first in terms of deposit volume and fund utilization rate, as shown in the figure below:
We found that, because Beta is in the first stage of its launch, 16 of the assets are all certified assets (Verified Markets) that are officially reviewed and rated. Among them, the only asset of Risky Markets is Feisty Doge NFT’s fragmented token NFD. NFD is an ERC-20 ownership token after the Feisty Doge NFT (Dogecoin prototype NFT) is fragmented on the NFT fragmentation protocol Fractional, which is a typical long-tail asset, and it is also the main asset type that Beta Finance wants to support in the future.
Asset module of NFD
4.3.4. Product UI\UX
Beta Finance’s product functional interface has simple style, with reasonable layout, intuitive interaction design and easy to use. Each business function page has detailed and reassuring data display.
Asset page of Beta Finance
Borrowing page of Beta Finance
4.3.5. Token model
At present, the project has not issued any tokens, and there is no information related to the total amount of tokens and distribution methods on its official website, nor any description of the use and scenarios of the tokens.
The detailed token model is no expected to be disclosed until the tokens are distributed.
4.3.6. Risk control
Beta Finance classifies certified assets (Verified Markets), the highest of which is S tier (three stablecoins), followed by ETH and WBTC as AA tier. Different levels of collateral correspond to different loan-to-value ratio (LTV) and parameters of liquidation line, but currently it only supports ETH and three stablecoins as collateral.
Beta Finance’s certified asset tier and corresponding risk parameters, source: Beta Finance document
It is worth mentioning that Beta Finance also disclosed the classification logic and model of certified assets, and the assessment dimensions include very detailed smart contracts of assets, counterparties and transactions of assets.
In terms of smart contracts, Beta Finance has obtained reports from two audit institutions, Peckshield and OpenZeppelin, and it has cooperated with Immunefi to launch the bug bounty program.
On the whole, Beta Finance is quite well prepared for security.
4.3.7. Summary
Beta Finance has accurate product positioning and business scenarios, focusing on long-tail asset lending and short-selling services, which forms a distinct difference from the existing large-scale lending platforms. Its product concept is concise, and the functional combination of long-tail assets + one-click shorting also has a large market growth space. In addition, Beta Finance has a very god investor background. Although the project has not officially started the token distribution and has not announced the token model, it deserves long-term attention.
4.4. Benqi
4.4.1. Project situation
Product launch date: August 19, 2021
Benqi is the first native lending protocol on Avalanche, led by Ascensive Assets with participation from Dragonfly Capital, Spartan Group, Ava Labs, GBV Capital and other institutions. Benqi’s current products are similar to most mainstream lending platforms. It adopts the lending model of fund pools, and all product mechanisms are normal without too many innovations.
4.4.2. Project features
As mentioned above, Benqi itself does not have many innovations in mechanism. The surge of its TVL comes from first-mover advantage on the one hand, and from the liquidity mining subsidy of US $3 million jointly launched by Benqi and the Avax Foundation on the other hand. In addition, Benqi itself also rewards its users with project tokens QI, and the total monthly subsidy amount exceeds US $10 million.
4.4.3. Business situation
Benqi is the largest project in Avalanche protocol ecology. According to DeFi Llama’s data, its TVL has accounted for 47% of the total TVL of Avalanche protocol. It is no exaggeration to call it “half of Avalanche ecology”.
Currently, Benqi’s core business data are as follows:
We can find that Benqi’s high total funds and capital utilization rate largely come from the high token subsidies at the current stage.
4.4.4. Product UI\UX
Benqi’s product interface is simple and quite satisfactory. Compared with Qubit and Beta Finance, it displays less data, with room for improvement.
Benqi’s asset market interface
4.4.5. Token model
4.4.5.1. Total tokens and supply
The total governance token QI of Benqi is 7.2 billion, of which 45% is used for liquidity mining. The specific distribution ratio is as follows:
The token distribution speed is as follows:
4.4.5.2. Token value capture
The main purpose of QI is governance, which can make proposals and decisions on important project parameters, asset launches, and incentive distribution. Currently, it does not have a design to buyback and burn tokens or dividends.
4.4.6. Risk control
In terms of risk parameters, the borrowing rate of Benqi’s listed assets is consistent with the parameters of the liquidation line, which needs to be strengthened. In terms of the specific borrowing rate, the mortgage rate of all listed assets is below 60%, indicating a low risk.
The risk parameters of Benqi’s listed assets, source: Benqi document
It is worth mentioning that in July this year, Benqi reached a partnership with Gauntlet before the official launch of its product. It also invited Gauntlet to participate in Benqi’s dynamic risk management, including mitigating bad debt risks, calibrating incentive mechanisms, and improving capital efficiency. Gaunlet is a well-known on-chain risk simulation platform, with in-depth cooperation with Aave, Compound, MakerDAO, etc.
In terms of smart contracts, Benqi has only one contract audit report from Halborn (obtained in May of this year), which is not strong enough.
4.4.7. Summary
Generally speaking, Benqi is a fairly satisfactory lending project. Although it has no many unique business innovations, it has few flaws. Its explosive growth is mainly due to the rapid growth of Avalanche protocol ecology since August, as well as the endorsement and strong support of Avalanche Protocol Foundation for the project. Because of this, as the largest lending platform for Avalanche ecology, the upper limit of Benqi’s subsequent development is the overall ecological scale of Avalanche.
5. Behind the emerging lending protocols
For the 4 emerging lending protocols that this article focuses on and analyzes, some of them have an amazing growth in business indicators, and some have many innovations in product mechanisms. From them, we can reveal more information.
i. The rise and competition of new public chains have brought unprecedented opportunities to emerging lending protocols
In the era when Ethereum was dominant, the latecomers in the lending field are facing direct comparison and competition with Aave and Compound. Since the lending platform of the fund pool model is a typical bilateral market, its network effect is difficult to surpass once formed. In addition, leading lending protocols have been used in combination with a large number of Ethereum protocols and has become an important foundation for DeFi Lego, which is difficult for emerging lending protocols to replace. The brand and long history of operation have further broadened the moat of leading lending platforms.
However, with the rise of the new public chains, emerging lending projects have found their own new territory, where the giants on Ethereum either have not migrated or have not yet established themselves. Thus, new players have the opportunity to compete on an equal footing with the older generation.
The rapid development of DeFi provides real business scenarios for the funds and users on the public chain, which greatly improves the subsidy efficiency of the new public chain (compared to the subsidy for Dapp developers in 2018) and boosts its confidence in subsidies. Aggressive subsidies from the public chain layer can help new projects to share a large amount of marketing costs, making their cold start to be completed quickly.
For the new public chain, lending is the underlying liquidity source of the financial ecology. It is very important to cultivate and support lending projects originally born on your own public chain. Therefore, we have seen the rapid rise of Venus on BSC, Anchor on Terra, and Benqi on Avalanche. Half of TVL’s top ten lending projects already come from outside of Ethereum.
ii. New public chain projects are growing fast, but Ethereum is still the birthplace and testing ground for innovation
Among the four projects analyzed in this article, Qubit from BSC and Benqi from Avalanche belong to the new public chain camp, and Euler and Beta Finance come from Ethereum.
The difference between the lending projects of these two camps is also very obvious: the business volume of the new public chain project rises quickly but with less original innovation; the business growth rate of the Ethereum project is not so strong, but with their own opinions regardless of the differentiation of product positioning, or the innovation of models and solutions.
This is determined by the degree of commercial development of the new public chain and Ethereum.
As an uncultivated virgin land, most financial needs of users on the new public chain are not met, thus the innovation requirements for the projects are not so high and it is Okay if they can be used. On the other hand, there are so many projects on Ethereum, and those projects with “low-hanging fruits” have already been picked. New projects must have insights into the unmet niche needs of users or can solve the problems of existing products, so as to have room for survival.
Fierce competition is the essential reason for the more intense wave of innovation on Ethereum.
However, as the number of new public chain projects gradually increases, the development space for low-quality and low-innovation projects will slowly disappear. More “DeFi new businesses” originating from Ethereum will be forked and relocated to the new public chain, or even new crypto projects will be born on the new public chain.
If you look at emerging lending projects on Ethereum and on the new public chain from the perspective of investment, they all have opportunities worthy exploring, but the evaluation criteria are different.
The development ceiling of the new public chain projects is limited by the scale of the new public chain ecology. To decide whether to invest in the lending projects on the new public chain, the first is to predict the future development of the ecology in which the project is located. In addition, the public chain’s support for the project is also very important.
For the projects on Ethereum, the key elements we need to examine include whether it has found the correct market segment, whether its mechanism can solve the key problems of the older generation of products, the team reputation in the Ethereum community and the potential resources it can mobilize.
Perhaps the above rules will be overturned and broken with the ups and downs of the influence spheres between different public chains. To fully embrace and enjoy changes is a mental method that one must practice in this industry.
The only certainty is: whether it is investment or entrepreneurship, the business game of the lending track is still just the beginning, so let us continue to look forward to it.
6. Reference
Industry data:
Project information：
Qubit：https://qbt.fi/
Euler：https://www.euler.xyz/
Beta Finance：https://betafinance.org/
Benqi：https://app.benqi.f
Articles and news reports:
Understanding Beta Finance in Three Minutes: DeFi Derivatives Market Incubated by Alpha Finance Lab
Understanding Terra Ecological Lending Protocol Mars Protocol in Three Minutes
All the above content is not considered as financial advice. If you find that there are errors in facts and data in this research report, please leave a message or send a message to us, and we will make revisions to the report.
