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How is Silo Different from Lending Protocols that Implement Isolated Money Markets?

By Crypto Guys | Navid Ladani | 6 Dec 2021

The future of DeFi is completely decentralized permissionless systems where communities are allowed to own significant control over the protocols without interference. Restrictions are kept at their barest minimum, while risks are compartmentalized via systemic isolations. Silo is working to move us many steps into that future. It recently announced the launch of its Genesis Token Auction. The aim is to decentralize its protocol and raise Protocol Owned Liquidity for its Decentralized Autonomous Organization (DAO). The Token Auction, as earlier announced, will run on Gnosis Auction from December 6, 2021, at 3:00 PM UTC to December 9 at exactly 3:00 PM UTC.

Since DeFi 2.0, the token lending ecosystem has been populated with protocols of different origins and applications, but many of these are too restrictive in their methods or mechanisms, and a large number have not really attained the goal of decentralization in its true sense. Silo is seeking to turn the table around in the DeFi lending market.

The Silo protocol does for lending what Uniswap does for liquidity. In other words, one can seamlessly use any token as collateral to borrow another. This is implemented through a permissionless, risk-isolating lending protocol.

The Uniqueness Of Silo Protocol

Several protocols implement isolated money markets today through various mechanisms. Among the implementations, two extremes emerge. First is the Kashi protocol, which creates an isolated money market for any pair of tokens you can think of. Dai alone has over 30 markets such as DAI-ETH, DAI-WBTC, DAI-COM, etc. This market design achieves high security at the expense of efficiency. Here, liquidity is fragmented, and markets are spread too thin. 

The second is Rari’s Fuse, which creates isolated pools, each like Aave or Compound. Because a pool can consist of many tokens, the entire pool is rendered risky when one of the token assets cannot be trusted for any reason. In other words, we are back to the same problem we see with CREAM/Aave/Compound, where users share the risk of all tokens in the pool.

For Silo, while the protocol mitigates risks by implementing risk-isolating money markets, it only creates one Silo only for a token asset. This design concentrates liquidity in single pools, allowing for liquidity to flow efficiently. The Silo lending protocol, however, delivers on three key areas:

  • Security by design - not through gatekeepers guarding a whitelist
  • Inclusive of all crypto assets - not just for top 10 or 30 token assets
  • Efficiency: Deep money markets that create value

Furthermore, Silo accepts all token assets and is highly liquid. Liquidity is concentrated and bridged, accepting any token as collateral. Also, liquidity constraints are set by the market, not governance. Users of the Silo protocol can borrow up to 50% of the value of their collateral. On the other hand, collateral will be liquidated when the debt position is 62.5% of the collateral. This ensures that no Silo will become under-collateralized during a liquidation event. In terms of governance, the development team of Silo will abdicate the control of the Silo DAO to the community. The community will retain 100% control over the Silo DAO’s treasury, and they can also create proposals to initiate changes via voting.


Silo has positioned itself to be at the forefront of the new wave of decentralized finance by creating a better design for money markets and community-focused mechanisms. Launching its Genesis Token Auction is a step further to the future that everyone has envisaged for decentralized finance.

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Navid Ladani
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