Z2O - Undercollateralized Lending
Zero-to-One (Z2O) Series
Given the decentralization and transparency benefits of blockchains, many have pointed to DeFi as crypto’s ‘killer use case.’ After all, finance today is built along opaque and slower traditional finance rails ripe for disruption by distributed ledger technology. Sobering up from the highs of the bull market of ‘21, however, DeFi advocates are now left wondering: ‘How much of the original vision did the space end up building?’
Zero-to-One (Z2O) is a research series on the verticals we deem imperative to onboard the next wave of DeFi users. While overcollateralized lending constituted half of DeFi’s $300b in TVL last year, it has fallen dearly short of its initial promise - providing the unbanked with permissionless access to financial services. The first part of the series dives deep into undercollateralized lending, an elusive product in the on-chain world. We examine current undercollateralized products, how they bridge the ‘trust gap,’ and the design tradeoffs they incur in the process.
Introduction to Undercollateralized Lending
Borrowers who take undercollateralized loans pledge assets whose value is lower than the loan amount. On the other hand, uncollateralized lo...Reports you may have missed
FIGURE: PEPE LEARNING ABOUT GHO AFTER BEING RUGGED BY UST Source: Fundstrat INTRODUCTION Founded by Stani Kuchelov, Aave (formerly LEND) is the largest DeFi lending market by TVL (~$8b across v2 and v3) and the fifth largest dApp overall. The protocol is currently live across five networks and 11 markets, hosting more than 30 assets across its platform. In July ‘22, Aave announced that they are launching their native stablecoin,...
Fundstrat’s recently launched Crypto Core Strategy offers subscribers a digestible tool to manage their crypto portfolio, with the goal of outperforming bitcoin. For those looking to amplify the returns of their long positions, this complementary issue of DeFi Digest strives to cast light on some of the best risk-adjusted yields. We first describe our methodology to filter for yield opportunities, then dive into the protocols offering the yields, and describe...
FIGURE: PEPE CROSSING BRIDGES TO EXPLORE ALTERNATE LAYER 1S / LAYER 2S Although ETH remains the dominant Layer 1 for most on-chain activity, alternate Layer 1s have demonstrated product-market fit throughout the bull market run of ‘20/’21. Solana (SOL 4.84% ) emerged as the ‘high-throughput chain’ focused on complex DeFi / gaming, BNB Chain (BNB) offers easy fiat on/off-ramps through Binance CEX, while Avalanche (AVAX) and Cosmos (ATOM -1.98% ) are building application-specific blockchains...
