A new DeFi liquidity solution by the Ren Protocol was recently announced by the CEO of the platform Taiyang Zhang, so in our latest cryptocurrency news we find out more about the solution.
Keeper DAO wants to offer a lot of the already existing services of the traditional underwriting services but will focus further on non-custodial crypto markets. The increase of decentralized financial products such as Maker, Compound, and dYdX has already opened the world filled with opportunities for building financiers. The main issue that many applications face, remains liquidity along with the access to capital.
Compound is usually built around a very simple financial concept which is the one of lending and borrowing. Similarly to a bank, the new DeFi liquidity will allow the users to earn interest on the loans that the borrowers claim. Since Compound is a smart contract, the returns will be much higher than a bank because of the lack of intermediaries. For 10,000 DAI one user could reasonably expect a return of 3.97 percent according to DeFi Pulse statistics. In return, for the DAI which was deposited, the will receive cDAI tokens and this interest rate depends mostly on how many borrowers and how many depositors are active on Compound.
There are more than $90.6 million locked up in the Compound protocol and for the most part, Maker reported up to $324 million locked up making it the number one DeFi app on the market. The loans on Compound are secured via collateralization and in traditional terms, this refers to when someone who is a borrower offers an asset as collateral in the case when they default on the loan. With Compound, the asset used as collateral is the tokens that borrowers have to deposit to increase their borrowing power and if the power falls below zero, the assets are sold to cover the debt.
The users are able to loan and borrow funds that they have and going beyond this amount, it will not be possible for low-cap borrowers. The same goes for broader margin trading on other DeFi platforms. Zhang writes:
‘’As with any leveraged financial application, there needs to exist a mechanism to liquidate under-collateralized positions to ensure solvency.”
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Stefan has been writing articles for DCForecasts since 2016 in-house full time. As one of our main cryptocurrency writers, he focuses on covering the latest cryptocurrency news, technical charts, price analyses of coins and press releases. When he is not exploring and covering the latest topics in crypto, you can find Stefan playing basketball, tennis or cycling.
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