Sirwin
Sirwin

Onchain Lending Is Evolving! A Look at the Top New Projects

By Michael @ CryptoEQ | CryptoEQ | 28 Mar 2024


You are reading an excerpt from our free but shortened abridged report! While still packed with incredible research and data, for just $40/month you can upgrade to our FULL library of 60+ reports (including this one) and complete industry-leading analysis on the top crypto assets. 

67cbbf4723857b85c151585aa280e6d940346c501cef75bafd7dea02b44b24c9.png

Becoming a Premium member means enjoying all the perks of a Basic membership PLUS:

  • Full-length CORE Reports: More technical, in-depth research, actionable insights, and potential market alpha for serious crypto users
  • Early access to future CORE ratings: Being early is sometimes just as important as being right!
  • Premium Member CORE+ Reports: Coverage on the top issues pertaining to crypto users like bridge security, layer two solutions, DeFi plays, and more
  • CORE report Audio playback: Don’t want to read? No problem! Listen on the go.

 

Intro

In the rapidly evolving landscape of decentralized finance (DeFi), innovative protocols are reshaping the lending and borrowing markets. These protocols aim to offer more flexibility, security, and efficiency than traditional financial systems. This report delves into the recent developments and strategic directions of four notable DeFi projects: Euler, Spark, Ajna, and Vesu. Each represents a unique approach to DeFi lending and borrowing, highlighting the diverse strategies employed to enhance user experience, manage risks, and expand the utility of digital assets.

Spark: Simplifying Access to Digital Currency

Spark positions itself as a user-friendly protocol that facilitates lending and borrowing, specifically focusing on Ethereum ($ETH) and Dai ($DAI), powered by MakerDAO. It plans to employ multiple oracle feeds to enhance the reliability of $ETH-USD price data, thereby mitigating potential risks. Notably, Spark leverages Lido's exchange rates to equate stETH directly with ETH, ensuring stability and confidence in transactions.

The Spark Lend protocol is the first product in a broader strategy to build vertically integrated markets for DAI. Spark Lend, a lending platform forked from Aave V3, lets users deposit assets as collateral and borrow assets as debt from other users. This protocol offers a suite of products, including SparkLend, sDAI, and SparkConduits, each playing a pivotal role in enhancing the utility and reach of DAI.

spark tvl 2024

SparkLend: An Advanced DAI-Centric Platform

Historically, MakerDAO balanced vault stability fees and the DSR to manipulate the supply and demand for DAI to maintain its peg. With this new market extension, MakerDAO will be able to directly monitor and regulate the supply of DAI in the Spark Lend market. This enables the DAO to guarantee the variable borrowing rate trends toward a specific level and yields an additional tool to manage DAI fluctuations.

The core component that sets this new DAI-supporting lending engine apart from other platforms is the combination of Maker’s Dai Direct Deposit Module (D3M) and PSM. D3M is a unique vault that allows Maker to directly interact with any secondary market by actively controlling the DAI supply according to current demand. Users will benefit from a more fixed and reliable DAI borrowing rate, which typically is subject to high fluctuations. The D3M has recently been incorporated into both AAVE and Compound, yielding more lucrative borrow rates for DAI across the greater lending market. This strategic integration enables an efficient platform for borrowing and lending, concurrently generating cash flow for MakerDAO. Notably, the SparkLend codebase is a fork from Aave V3, developed with permission from the Aave team. In a reciprocal arrangement, Spark has committed to allocate 10% of its DAI protocol profits to Aave.

At its core, SparkLend facilitates asset deposits as collateral, allowing users to borrow against them. A key differentiator for SparkLend is its role in the overarching strategy of MakerDAO, marking it as the first SubDAO under its umbrella.

DAI, USDC, USDT, WETH, and wstETH, are available for both supply and borrowing on the platform, offering users a broad spectrum of options to engage with.

The liquidation mechanism in Spark Protocol is a critical component, particularly for maintaining the system's stability. Liquidation is triggered when a borrower's Health Factor (HF) reaches 1, signaling that their collateral value is insufficient to cover their loan. In such events, up to 50% of the debt must be repaid, and liquidators can claim a bonus or penalty. The liquidated amount and bonus are then deducted from the borrower's available collateral. In scenarios with multiple collateral types, liquidators can opt for different bonus rates for different assets, fostering competition among professional DeFi users to capitalize on these opportunities. To avoid liquidation, it is advisable for users to proactively manage their assets, either by depositing more or repaying loans in advance.

Moreover, Spark aims to broaden its collateral options to include both USDe and sUSDe pools, reflecting its strategic partnership with MakerDAO to diversify and strengthen lending operations. The protocol's integration with Maker's liquidity and direct lending capabilities underscores a commitment to providing secure, efficient, and user-friendly lending experiences, aligning with conservative principles of safety and over-collateralization to capitalize on high-yield opportunities.

Ajna: Oracleless and Permissionless Lending

Ajna introduces a novel lending paradigm by adopting an oracleless and permissionless framework that accepts a wide array of collateral types, including both fungible and non-fungible tokens. This approach signifies a departure from conventional models, emphasizing Ajna's agnostic stance towards asset novelty and diversity. The protocol encourages users to leverage their entire portfolios for lending purposes, enhancing decentralization and interoperability within the DeFi ecosystem.

The absence of a governance layer in Ajna facilitates rapid adaptability and inclusivity of assets, thereby eliminating the risks associated with secondary markets and bad debt. Ajna's reliance on third-party frontends for user access further exemplifies its commitment to openness and flexibility in the DeFi lending space.

Vesu: Setting New Standards in Permissionless Lending

Vesu emerges as a trailblazer in the on-chain lending arena, advocating for fully permissionless and over-collateralized lending agreements. Its innovative design combines liquidity depth with the flexibility of permissionless, multi-asset lending pools, each governed autonomously to mitigate risk and promote market efficiency. Vesu's introduction of modular lending markets and extensions enables a vast array of lending arrangements, mirroring Uniswap v4's hooks to foster the development of bespoke lending experiences.

Vesu's architecture underscores a commitment to free market principles, eliminating central governance to facilitate competition and innovation among lending markets. This approach not only addresses the limitations of existing protocols but also introduces features designed to meet the diverse needs of the DeFi community, positioning Vesu as a foundational element in the future landscape of DeFi lending.

Euler: Pioneering Modular Lending

Euler's significant loss of approximately $200 million due to a security exploit a year ago has not deterred its development team. Since its inception in 2020, the team has been steadfast in advancing the platform towards the launch of its second iteration, Euler V2, anticipated in Q2 2024. Euler V2 is likened to Amazon Web Services (AWS) for DeFi lending, emphasizing a modular and composable framework that allows for both custom and off-the-shelf lending solutions. Presently, Euler is initiating what is considered the largest code audit competition in the industry, with a prize pool of $1.2 million, hosted on Cantina.

A key feature of Euler V2 is its oracle-agnostic approach to asset pricing, granting users the autonomy to determine their preferred level of oracle reliance. This flexibility underscores the trade-offs inherent in oracle-free solutions. Euler V2 introduces three distinct vault types—Core Vaults, Edge Vaults, and Escrow Vaults—each designed to cater to specific user preferences and needs, from stringent risk management and efficient capital use to a permissionless environment conducive to innovation in lending terms and collateral types.

Conclusion

The dynamic evolution of DeFi lending protocols reflects a broader trend towards decentralized, secure, and user-centric financial services. Euler, Spark, Ajna, and Vesu each embody different facets of this transformation, from modular lending solutions and enhanced safety measures to oracleless operations and permissionless markets. As these protocols continue to innovate and adapt, they offer promising avenues for expanding the accessibility, efficiency, and diversity of financial services in the digital age, setting new benchmarks for the DeFi sector at large.

How do you rate this article?

89


Michael @ CryptoEQ
Michael @ CryptoEQ

I am a Co-Founder and Lead Analyst at CryptoEQ. Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.


CryptoEQ
CryptoEQ

Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.