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If you’re reading this, you probably already know something about Decentralized Finance (DeFi).
While some might argue Bitcoin itself was the beginning of DeFi, it’s hard to argue against the fact that borrowing/lending protocols are nowadays the backbone of our nascent industry. In this article, we’ll explore how Bonded Finance is aiming to push the DeFi sector into a new gear by expanding their reach and capabilities.
We’ve come a long way from the early days, and DeFi (both as an idea and as an industry) is far beyond where it started. Therefore, it might also be worthwhile to take a quick look at where we come from, how we’re moving forwards… and why.
(What Now Seems Like) Ancient DeFi History
The first sketch of what we now know as DeFi began with MakerDAO. Maker was built to create the first crypto-backed stablecoin, backed purely by ETH at its beginning, introducing the $1 DAI with a simple system: You could borrow stablecoins from Maker by taking on an overcollateralized loan backed by ETH.
Through the years, many projects (some simple, some complex) have been built from these grounds. The often-overlooked fact that they’re created using the same base blockchains (often Ethereum) has given birth to a whole financial ecosystem that can achieve what Traditional Finance can’t: Perfect, near-instant composability.
Putting a near-infinite number of possibilities within smart contracts on the Ethereum blockchain allows anyone, anywhere, to code on top of others’ efforts. Through this text, you’ll read about how Bonded is pushing to take DeFi to the next level. Remember that, despite the added complexities, the goal of every member of the ecosystem ultimately should be to increase the utility (and the utilities!) for everyone involved.
Alternate to Main
We land in the here and now. In 2021, the crypto ecosystem has become increasingly complex… there are now more than four thousand cryptocurrencies!
The current altcoin panorama is full of challenges, most of them representing the gaps in our development. We now know that, through the most intense periods of decentralized crowdfunding (aka the ICO madness), having a token was vital for projects to be able to shoot their shot, although many of them didn’t necessarily need one. We, as a community, accept this as a necessary evil, which created a sea of utility tokens, disconnected between themselves, representing projects at different stages of development and with values defined by entirely different factors.
Indeed, a challenging environment for projects to grow.
On one side, projects nowadays need to continue to utilize their tokens and care for their investors’ satisfaction. On the other hand, sometimes this goes against their very interest. Many of them certainly could wish for their treasuries to be somewhat stable. The very same distinctions that made them launch tokens from the beginning, are now standing in their way to access DeFi protocols with fewer barriers.
Add to this a financial panorama in which interest rates in the traditional banking system have plummeted, and you’ll see that there are more incentives than ever to make DeFi a success. Financial institutions and high-net-worth individuals, in particular, are now heavily motivated (by inflation and seemingly non-existent interest rates) to search for new solutions to increase their yields… which includes, as well, investing in altcoins.
Putting Things Back in the Hands of the Community
We’re saving the technical details for another time, but, for now, and since you know Bonded’s ethos, we can lay down the very basics for you. In short, Bonded combines the best trends in DeFi lending, borrowing, and stablecoin minting and lays down a framework for holders of any whitelisted coin to benefit from it.
The Bonded Finance ecosystem is divided into the following components:
The Primary Lending Facility
Within the Primary Lending platform, lenders can deposit whitelisted stablecoins into a pool to earn interest, borrowers can lock coins ranging from top-10 coins to low cap altcoins to take over-collateralized loans in stablecoins. Liquidators then stabilize the whole thing by repaying undercollateralized loans in exchange for liquidation fees.
This creates a system in which users can make the most out of their stablecoins by lending them out, with altcoin holders benefitting by using their bags as collateral to obtain stablecoins while remaining exposed to positive volatility. The platform automatically balances the incentives offered to borrowers and lenders, as well as the fees to be distributed to liquidators, creating a fertile environment for investors of all kinds to participate.
The USB Stablecoin Platform
Bonded is debuting a crypto-backed stablecoin, $USB, backed by a range of altcoins. Within the USB Stablecoin Platform, users can supply whitelisted altcoins as collateral to mint $USB. Users that wish to can also stake their USB to earn rewards. The platform also features liquidators fulfilling the same mission as those in the Primary Lending Facility.
The project also confirmed that they will be providing an initial yield farming facility so stakers of USB can earn rewards from the BOND treasury.
This section, quite simply, allows $BOND token holders to earn a share of the fees automatically collected by the platform. Users can stake and unstake their $BOND as they please. It’s important to note that every participant that earns rewards from fees earns them from a common pool, which is filled by the platform utilisation fees.
One of Bonded’s most exciting ideas. A project needs to apply through our governance system to get approved as a valid altcoin within the system. This system, operated by Bonded at first, will be run by the community through a DAO in time.
The terms under which a project can be listed will be decided by an oracle assessing their strengths: Projects are rated into tiers by these oracles based on their liquidity, expected stability, and other factors. Their tier rating then directly influences their liquidation thresholds and other factors within the platform.
Bonded, at its current form, is not trying to reinvent the wheel. They acknowledge the great innovation that has happened in our space, and are excited to try and improve upon them. The best way to do so, as they say, is to take this idea and apply it to a platform that allows every project to give their investors access to the financial opportunities once only available for a select few.
Only through the emergence of new alternatives can the industry advance and continue to build upon its creations. In a field that hasn’t yet finished inventing itself, we believe, Bonded brings improvements to the table that haven’t yet been tried… and that can greatly benefit the whole crypto ecosystem.