Before I dig down on Yield, let let me tell you a short story on how once the father of AMMs Kyber Network with VC backing and tons of people in the team were defeated by one-man ran Uniswap.
Together with Bancor, Kyber pioneered the Automated Market Maker (AMM) decentralized exchange (DEX) model, raised huge money via ICO and even had Vitalik as the advisor.
Kyber allowed teams and big players with reserves to pool their tokens and earn on the swap fees. In that sense, it sort of mirrored a model commonly seen in traditional finance where only large players (ie. accredited investors, banks, hedge funds, institutions) could participate in a system where allocating capital turned them a profit.
That was their Achilles heel.
Kyber allowed only big boys to get in. While everyday token holders were once again, excluded from the financial system.
Then, out of nowhere, Hayden Adams showed up with his Uniswap prototype, allowing for ANY amount of ANY ERC-20 token to be pooled in their AMM model. It didn’t rule out the little guy. It wasn’t exclusive. It was inclusive, allowing everyone to join and profit from.
Guess what happened next?
They crashed everyone else. Uniswap’s open and inclusive AMM model attracted capital from both large and small cryptocurrency holders. This enables them to grow much faster and much larger than the “exclusive” competition.
Today, Kyber is ranked #99 while Uniswap is ranked #15 on CoinMarketCap. And you know what? There was a time when Kyber held the #15 spot.
This goes to show that an open and inclusive system that breaks down the barriers to entry for ANY individual and ANY token will win, every time.
How's the DeFi Space looking today?
Uniswap and other inclusive AMM DEX protocols that enable anyone with any ERC-20 token and any amount of it to provide liquidity and profit from token swap fees, dominate the market.
But what about other types of DeFi protocols like lending and borrowing? Are they following Kyber’s path of exclusivity or Uniswap’s path of inclusivity?
Let’s find out:
Data Source: DeFiPulse
However, there is a problem with these lending platforms. They’re only partly following Uniswap’s lead of inclusivity.
Let me explain.
Aave and Compound are inclusive in that they allow anyone to pool their assets in, regardless of size. But they are exclusive in that they allow only for the largest assets to get listed and lent.
So, while anyone can pool their assets, the amount of supported assets is limited. Most of the ERC-20 tokens are left out of the equation AND that's a ton of capital waiting on the sidelines…
We all know what happened to Kyber when there was a ton of capital left on the sidelines, right?
A new and innovative product came along (Uniswap) and incorporated all that excluded capital into its platform and dominated the AMM-based token swap market.
That said, what do you think is going to happen now that the dominant DeFi lending platforms have a market inefficiency (being their lack of support for most ERC-20 tokens)?
You guessed it!
A new DeFi lending platform will come along and address the need to not only support anyone and any amount but also support any ERC-20 token for lending/borrowing.
And guess what?
The new DeFi lending platform doing just that is Yield Credit.
How Yield Credit is About to Change the DeFi Lending Landscape
Yield Credit is a decentralized, non-custodial, peer-to-peer (P2P) lending platform that enables anyone to lend or borrow any ERC-20 token.
It’s fully inclusive, just like Uniswap. It’s powered by Ethereum, just like Uniswap. And it’s poised to disrupt the DeFi lending landscape, just as Uniswap disrupted the AMM-based DEX landscape.
With Yield Credit, anyone can place a lending offer or borrow request on the Yield dapp and have it funded by the corresponding peer, no questions asked. There’s no credit check and no KYC/AML requirements as it’s fully decentralized and P2P.
Why P2P Lending is a GameChanger
Yield Credit differs from most DeFi lending platforms such as Aave and Compound because it’s truly peer-to-peer, meaning it’s individualized where lenders and borrowers deal directly with one another and agree to the parameters (interest and duration) beforehand.
This enables lenders to earn a fixed, guaranteed interest rate starting at 2%, assuming the loan is repaid. On the other side, if a borrower successfully repays the loan, they earn up to 350* $YLD, the protocol’s native cryptocurrency (*subject to changes).
Therefore, not only do lenders benefit from earning a guaranteed fixed interest rate but borrowers benefit from maintaining healthy loans and repaying on time.
This is the power of P2P lending with Yield.
As for other DeFi lending platforms, they use a money-market model where your deposited funds get added to a pool with everyone’s funds, and from this, borrowers collateralize some of their deposit and borrow from this pool.
This interplay of “supply” and “borrowing” from this pool is how their respective rates are determined. There are no guarantees and rates are not fixed.
For instance, the APY % for lending $DAI in Compound might show 13% on the dashboard, but a week or two from now it might be showing 3%. This dynamic not only affects lenders who end up earning less than expected but borrowers too, who might have to pay more than expected if interest rates go the other way and rise.
With these DeFi lending platforms, the participants involved have no control over the rates as they are at the mercy of the pool dynamics.
Moreover, another key factor as to why P2P lending is a game-changer is the fact that people will be able to lend/borrow any ERC-20 token they wish. No longer will people only have the option of supported pool tokens.
With Yield Credit, any ERC-20 will be fair game. If there’s a demand for a specific asset, you’ll be able to create a lending offer for it. If you desire a specific asset, you’ll be able to create a borrow request for it. As long as there is a peer on the other end willing to fulfill the order/request, it can be done.
This simple fact can not be understated by the way. There is tons of capital in various ERC-20 tokens just waiting on the sidelines, and Yield Credit will unlock their potential. It will open the flood gates.
Yield Credit Gives You Back Control
Aside from the game-changing dynamics mentioned above, yet another revolutionary factor Yield Credit introduces is control.
Yield Credit puts its users (lenders and borrowers) in full control. When you create a lending offer or borrow request, you can choose anything from 2% up to 12.5% interest with any duration.
With that, Lenders don’t have to worry about market dynamics causing the rates on your active loans to trend to ~0%, which is a problem commonly faced by lenders on Aave and Compound.
Not only are lenders incentivized by earning interest (as per usual), but borrowers are also incentivized to maintain healthy loans and repay on time as they can earn up to 350 $YLD token rewards for doing so.
All in all, Yield Credit brings something new and exciting to the DeFi lending landscape and it will be interesting to see how the market receives it.
Will Yield Credit displace Aave and Compound as the dominant DeFi lending platform? Will it revolutionize the DeFi lending landscape in the same way that Uniswap revolutionized the AMM-based DEX landscape?
I think it has a shot.
That said, keep an eye on Yield Credit as it has the potential to upend DeFi lending as we know it.
Cheers guys, see you in the next one!