First of all, there’s no type-o in the article’s title: DeltaPrime is a platform that allows you to borrow up to 5x’s the amount of collateral you deposit, or in other words, if you deposit 10 $AVAX as collateral, you can borrow up to 50 $AVAX in return before getting liquidated.
For posterity’s sake, I generally try to stay away from the ultra-risky degen plays— many are outright scams or at the very least, not very sustainable. And in full transparency, I was initially not planning on doing an article in DeltaPrime, but I was simply too curious for how a protocol was able to support itself if they are offering 5x’s the amount of assets as was being deposited as collateral. However the more I read about DeltaPrime’s mechanics, the more un-degen it actually appeared to be, and as I’ll break down in the article, it seems that DeltaPrime has been able to come up with an extremely capital efficient way for people to borrow and lend, and I’d imagine that depending on its success, we’ll start to see more adoption of their revolutionary undercollateralized model.
But first, in order to understand how radical this is, let’s start with the basics of borrowing and lending.
How borrowing/lending normally works
The majority of crypto borrow/lending protocols such as Aave work in a pretty straightforward manner — you put up an asset as collateral, and then you are able to borrow a different (or the same) asset in return:
You’ll notice that from the above graphic, there is normally a Supply APY (which incentivizes lending) as well as a Borrow APY, which is what the borrowers have to pay back on top of their borrowed assets upon redemption. You may be wondering — if there’s an APY on borrowing, then why do people borrow? Don’t they lose money?
Because they’re degens.
Just kidding, there are some really great reasons for why people get into borrowing and lending, but more on this in a bit.
In a sense you can think of borrowing and lending like a pawn shop, where you pawn something of value in order to get some cash back. In order to gain access to your initially pawned item, you simply need to pay back your borrowed assets plus some possible interest.
In the majority of cases, your loan is overcollateralized, meaning that there is more value in your collateral (initial deposit) as opposed to what you borrowed. In other words, if I supplied $1000 dollars, I may only be able to borrow 70% of that, or $700 dollars worth depending on the asset(s). The rationale behind overcollateralized deposits is that the collateral holds the borrower accountable to make good and return on his loan. If the loan is undercollateralized, then theoretically the borrower would have no incentive to return what he borrowed — it’s like pawning a Cadillac and borrowing a Benz in return (no offense meant to Caddy-maxi’s).
How DeltaPrime gives you the Benz
Like I explained in my intro, DeltaPrime is a platform that offers undercollateralized loans up to a rate 5x’s their original deposit, or in other words, if you supplied that $1000 dollars worth of assets, then you can borrow up to $5000 dollars worth in return. The way that Deltaprime stops you from running off with your borrow assets is through a trustless system which they call a Prime Account:
Within a Prime Account, you can perform actions just as if you were from your own wallet — paying gas fees, making LP tokens, staking, etc. The only thing that you are unable to do is to send them to an outside wallet that is not connected to your Prime Account. To withdraw your profits from your Prime Account to your personal wallet, you first need to match all borrowed assets with their equivalent amounts in your assetlist. From there you can withdraw as long as much as you want, as long as the position stays solvent. To withdraw more, you need to repay (part of) your borrowed funds.
Immediately after opening up a borrow position in your Prime Account, you’ll start notice at the top of your screen the 8–9% (or more) negative APY Account borrowing fees you’re getting hit with from the loan, therefore the goal is to make up that negative APY by earning a much greater positive APY with your 5x’d borrowed sums. This leads me to my next section…
What Returns can I get with Deltaprime?
The short answer is that it depends on your risk appetite. If you want to leverage 4–5x, then obviously you might be taking more risk of getting liquidated but you’ll also be getting higher APY’s. Regardless of how undercollateralized your loan may be, there are multiple strategies including Pangolin and Traderjoexyz that you can currently choose from (there’s much more suspected to be in the works, including GMX.io) in order to beat the 8–9% borrowing fee. Conveniently, DeltaPrime has consolidated some of the top strategies in the following tweet:
In this thread 4 strategies are broken down and categorized by amount of risk, ranging all way to around 100% APY. If you have the gumption to create a different strategy that might be safer/juicier, there’s a nifty calculator you can use to see whether or not your returns/risk are worth it.
Risks and drawbacks
Like anyone/anything that wants to fly too close to the sun, there’s always a risk of being burned, and DeltaPrime is no different. From what I could tell, these are the biggest risks and drawbacks:
Liquidations: With any borrowing/lending platform this should be obvious, but I'll say it anyway — there’s always a risk of getting liquidated. You can still get liquidated on DeltaPrime. With DeltaPrime however, the liquidation mechanisms work a bit differently so it is still important to know the rules before you play the game. When on your Prime Account page, you’ll see a Health ratio which will tell you the overall health of your collateral versus what is loaned:
If the meter drops below zero, liquidation bots will get activated to bring up your Health ratio at least back to 25%. It always sucks to get liquidated, but the benefit here is that you don’t get liquidated for 100% — this measure is put into place to protect lenders from getting absolutely rekt.
Liquidity: one could argue that this is an inherent risk factor for all protocols, but I would say that this is especially important for DeltaPrime since there is so much potential liquidity being borrowed but potentially not enough liquidty being supplied. In their docs they state that:
Because DeltaPrime is bootstrapped with liquidity from a close partner, which is committed for 6 months, a high percentage of the deposited funds is controlled by us. As this liquidity will not be pulled out due to market events, the initial risk of a liquidity crunch is severely decreased.
In other words, they’re saying that because they currently have control of most of the liquidity, it should prevent any credit crunch. If the protocol experiences a potential liquidity drain in the future, there are certain levers DeltaPrime can pull in order to incentivize borrowers/lenders including different changing interest rates in regards to different pool utilization ratios, however this cryptomarket gets easily spooked, and with an almost all-time low level of investor confidence right now, billions of dollars can run away in just days.
Upon further talking to Gavin Hasselbaink, DeltaPrime’s CBDO, I was a bit relieved to hear that the “close partner” in their docs was Colony, an Avalanche community-driven accelerator. However despite backing from solid partners, liquidity will continue to be one of the biggest constraints for how awesome (and safe) DeltaPrime could potentially get. If there’s no $AVAX to borrow, then…the protocol simply won’t be used.
All that being said, it appears that the DP team has been quite busy building out a lot of partnerships all in only the last few months:
There’s already been so much being built on top of GMX on the Arbitrum side, that I wonder if this will finally realize the potential of GMX on Avalanche.
Trustworthiness: There’s a number of different positive things I’ve found that helped assuage my fears of there being a potential rug pull.
- Multisig: Two out of three people on DeltaPrime’s core team must agree with every code upgrade; all 3 of the core team members have doxxed profiles on linkedin, including Gavin, the CBDO that I spoke with before: (1, 2, 3)
- Four different audits: (1, 2, 3, 4), the most recent from December 2022 by Peckshield
- Code changes are on a timelock: a 24-hour timelock for code changes was instituted on January 10th, but there are plans to change this to a 72-hour timelock in the future (and as I mentioned above, code changes are approved via multisig)
From my conversations with Gavin and other members on discord, these guys seem legit, but then again, I’ve been burnt in the past regardless of these trust factors being in play, so it’s always best to try to DYOR and be wary about what you might be getting yourself into.
Conclusion TLDR
Having officially launched for just over a month, it’s still really early for DeltaPrime. They’ve been announcing multiple new partnerships every month, and with all the TVL that’s on GMX.io, I suspect that they’ll be able to absorb some of that easily. DeltaPrime appears to be on something revolutionary in the crypto-lending space, and I think that it’s only a matter of time before others start to see it too.
Thanks for taking the time to read this and be sure to follow me on twitter (https://twitter.com/CryptosWith) to get all my latest updates. Also, looking for a gift for your Crypto-loving/hating friend? Give them a REKT journal to cheer them up!
Disclaimer: And as a final reminder, this is not financial advice and this is for educational and entertainment purposes only. Please as always, do your own research and find what investments are best for you. Cheers everyone!
