Lever in one easy to read article

Just a year ago, the entire DeFi lockup had about $1 billion in assets, with applications focused on lending and trading, such as Maker and Uniswap.

Lever in one easy to read article

(The road by the walls of Paris, Van Gogh)

DeFi is iterating

Just a year ago, DeFi as a whole had about $1 billion in locked assets, with applications focused on lending and trading, such as Maker and Uniswap. today DeFi has over $140 billion in locked asset volume, an overall increase of over 140x, a very impressive growth. In addition to the continued rapid growth in trading and lending, DeFi’s derivatives space is beginning to accelerate.

Lever in one easy to read article

(Total locked-in value of DeFi assets at the time of writing, from defillama)

During this rapid development, there is a growing understanding of DeFi and more and better experimentation on how to build better DeFi products.

Currently there are a large number of locked-in assets, both for lending and trading. For example, whether you are borrowing DAI on MakerDAO or providing liquidity for market making on Uniswap, you need to deposit a large amount of assets. For every $1,000 of DAI lent on MakerDAO, $1,500 of ETH needs to be pledged. the same is true for Compound and Aave, both of which require overcollateralization in order to lend. This means that current DeFi assets are generally underutilized.

As we all know, DeFi protocols are Lego blocks that can be utilized without permission or trust. Even so, DeFi protocols are still underutilized among themselves, and there is a question of how to organize these DeFi Lego blocks well. For example, current lending and transaction protocols are not well integrated. In many scenarios, users have to do it manually. For example, lending users need to barter, first need to withdraw pledged assets or borrow the appropriate percentage of tokens from protocols like Compound and Aave, and then go to a DEX like Uniswap or Sushiswap to trade.

This model does not sufficiently integrate lending and leveraging transactions well. Users are not able to facilitate leveraged transactions directly on DeFi. Lending agreement users first need to pledge a loan on the lending agreement and then obtain the corresponding token (e.g. USDT) to trade on DEX, the whole process is more cumbersome and complicated, and it is difficult to centrally manage the bar trading positions, which is not conducive to keeping track of the risk profile. This fragmentation can be solved by the DeFi protocol.

In addition, users of lending agreements pledge a large amount of assets in the platform, which (such as Aave’s aToken) are deposited by users and lack a high enough utilization rate.

The current DeFi asset utilization rate is even lower than CEX and traditional finance, which is detrimental to DeFi’s overall growth in the long run. deFi needs to keep improving in asset utilization to enhance its attractiveness to users.

As a result, as DeFi explores deeper, there is an increasing focus on the most important aspects of liquidity, asset utilization, risk management, and user experience.

Developers are trying to drive DeFi forward through various mechanisms to achieve better DeFi. One such DeFi protocol is Lever Network, the decentralized margin trading platform we present today, which attempts to build better margin trading protocols that can achieve better liquidity, higher asset utilization, and a better experience for users.

Specifically, how easy is it to understand the Lever Network and what mechanisms does it use to iterate on today’s DeFi?

Lever is the open source margin trading platform

Simply put, Lever is a decentralized open source margin trading platform. Users can bar-trade on a platform based on the Lever protocol, and can go long or short a crypto asset. These leveraged assets are sourced from lenders, so users can deposit their idle funds into Lever to lend to other users and thus receive lending revenue. In addition, to increase the utilization of assets, users can even use some other DeFi protocol assets (e.g. cToken in Compound, aToken in Aave) as collateral assets. Traders, on the other hand, can participate in long or short positions after depositing margin to the margin pool.

In terms of the usage process, if a user wants to trade on Lever with leverage, he/she first needs to deposit the current Lever-backed assets as collateral, after which he/she can earn the corresponding interest. Once the user has deposited the assets, they can then trade on margin and can choose to go long or short the assets.

Lever in one easy to read article

(Trader’s bar trading process on Lever platform, from Lever )

Based on the assets deposited by the user, the user can set his position, including size, leverage, etc. The system automatically detects the maximum position that the user can take. When the user wants to close a leveraged position, he/she can select the corresponding position as well as choose to convert to an asset. When the transaction is completed, the position will be closed. After closing the position, the user can repay the loan. The user can transfer funds from the margin account to the wallet only if the risk rate (risk rate) of the margin account is above 150%.

Lever in one easy to read article

(Set up margin trading on Lever, from Lever )

From the above, it may not look very different from other decentralized margin trading platforms, such as dydx, etc. However, if you dig a little deeper into their specific mechanisms, you can find that there are major differences between different margin trading platforms. And these differences in mechanisms can make them produce different user experiences and eventually lead them to different evolutionary paths.

So, what are the different mechanisms of Lever that are worthy of attention?

Lever’s mechanism to enhance liquidity

Liquidity is the most important part of DeFi and is the foundation of the entire DeFi market. How does it maximize its liquidity?

Some of the current margin trading platforms in the DeFi space, some of which use an order book model, such as dydx, have natural liquidity constraints that make it difficult to bring in liquidity from outside. As a result its trading pairs are concentrated in a few more liquid pairs. This model is unable to meet the diverse needs of the market, with users increasingly demanding to go long or short on a variety of assets.

To maximize its liquidity, Lever uses the mechanism of introducing external AMMs. It plans to introduce liquidity from DEXs such as Uniswap, Sushiswap, PancakeSwap, etc., thus providing users with greater trading depth and achieving smaller slippage. In addition, this mechanism also has the opportunity to bring users the opportunity to go long or short more assets, not only bar trading opportunities for ETH and BTC, but also long or short opportunities for various ERC20 tokens.

Lever in one easy to read article

(Lever’s mechanism design for leveraging external AMM liquidity, from Lever)

Lever’s focus on asset utilization

As we mentioned above the current integration between lending and trading platforms is not very good and Lever tries to change this situation. lever provides a trading scenario for lending and a margin trading service for traders that can significantly increase the frequency and size of lending, thus increasing capital efficiency.

This increase in asset utilization has the potential to generate greater potential revenue for users, which is attractive to them. This attractiveness has a black hole effect. The higher the asset utilization rate, the more money will come in.

In addition, as mentioned earlier, the Lever protocol also allows users to earn interest by storing tokenized stored asset certificates from other protocols on the Lever platform, and these assets (e.g., Aave’s aToken and Compound’s cToken) can also be used as collateral for leveraged transactions, which also facilitates increased utilization of user assets.

As DeFi evolves, whoever can help users better improve their asset utilization will be well positioned to compete in the future. This is not only true for agreements in the same track, but also has the same effect for agreements across all tracks. It’s cross-track all-DeFi industry competition.

Lever’s User Experience Optimization

The current user experience of DeFi is not good enough. The Lever platform allows traders to take long or short positions in one step and already supports market orders, with future plans to support limit orders, stop-loss/stop-gain orders, etc.

In addition, Lever uses a visual position management interface to help users manage their positions more easily, and Lever also integrates with TradingView to provide users with professional K-line charts.

Lever in one easy to read article

(Position management in Lever platform, from Lever)

The above three points are the most important aspects of Lever and are the core dimensions of defi’s iterative development. So, what is the overall view of Lever’s operational framework?

Lever’s overall operating framework

Lever in one easy to read article

(Lever operational framework, from Lever)

The diagram above shows the overall framework of Lever, you can see the operation of the user depositing assets, bar trading, the liquidity of its use of external AMM, the modules of its risk control, etc. This is also a diagram to understand Lever from a macro level.

From Lever’s framework, we can see its efforts to integrate lending and trading protocols. With Lever, users can get more exposure to risk. Assuming a user holds RUNE but is bullish on SUSHI, the user can deposit their RUNE into Lever as collateral, then borrow stablecoin assets (USDC, USDT, DAI, etc.) and buy SUSHI with the stablecoin (with or without leverage), thus gaining exposure to SUSHI, and if RUNE and SUSHI rise , that user will also get a correspondingly larger gain. Of course, if the price falls, there is a corresponding loss to be taken. That is to say, the user can go long or short on more assets. In addition to the common BTC and ETH, there can be more DeFi assets, such as UNI, SUSHI, Aave, COMP, SNX, MKR, etc.

Through Lever, users also have the opportunity to earn more passive income. One of the benefits of lending and margin trading with Lever is that in addition to receiving lending revenue, you can also be rewarded with more LEV tokens through Lever’s liquidity mining, where 40% of LEV goes to liquidity mining incentives, according to LEV’s token economy. Currently Lever has launched its liquidity mining program.

Also mentioned above, Lever’s mechanism allows users to get more loanable assets. In addition to ETH, DAI, USDC, USDT, users can also use their deposited proof of assets (e.g. pledged tokens on Compound cToken, etc.) for borrowing as well, providing higher yields for users while also expanding the market and scale of margin trading.

Lever’s special design in clearing

Since it is a margin trading platform and utilizes bars, it is inevitable to encounter liquidation problems when the market undergoes violent fluctuations. lever considers four aspects for risk control, as follows.

Lever in one easy to read article

(Risk control of Lever protocol, from Lever)

Lever’s risk control consists of four parts: clearing, prophecy machine, token listing, and risk reserve. Among them, Lever’s clearing mechanism tries to achieve zero cost and no delay. In other words, the clearing smart contract of Lever protocol can be triggered automatically when invoked by the clearer. And the clearer does not need to prepay funds, making zero-cost clearing possible.

The following chart shows some of the important parameters of Lever, including LTV (Loan To Value) and clearing threshold, etc.

Lever in one easy to read article

(Some initial parameters of the Lever protocol, derived from Lever)

Among them, you can see that Lever’s LTV parameters are not too aggressive, except for the stable coin at 75%, most other DeFi tokens have LTVs between 50% and 65%, while the liquidation threshold is also left open. Of course, these parameters can subsequently be iteratively updated through LEV token governance to accommodate new developments.

Lever’s Token Mechanism

LEV is the governance token of the Lever network. LEV token holders can make various iterative proposals to upgrade the protocol based on the resolutions passed by the community. 40% of these tokens are used for liquidity mining. Looking at the cycle of its token release, this portion of tokens can be used not only for cold starts but also for long-term incentives.

From what we can see, LEV is mainly used for governance and liquidity incentives. However margin trading has natural opportunities for value capture, such as transaction fees. Subsequently, through governance, there is an opportunity for LEV to capture the value of the agreement or as a purpose token. For example, holding LEV can mitigate transaction fees, pledging LEV can capture some of the transaction fee gains, etc. (similar to SUSHI’s design).

Therefore, the size of LEV’s future value depends largely on the size of the bar transactions on the Lever protocol itself.

Lever by the numbers

Lever launched on the BSC chain yesterday with over $13 million in deposited assets and over $2.6 million in lending in one day.

Lever in one easy to read article

(Lever protocol data one day after launch, from Lever)

In addition, Lever’s liquidity mining has already started. As its mining gradually proceeds, it may draw the attention of more of its users.

DeFi’s new phase of the battle

In the early days, DeFi’s most important task was to discover the product and market fit. The explosion of DeFi’s user base and transaction volume indicates that this phase of exploration has been initially completed.

Now DeFi is gradually moving deeper, and the strategic high ground today is not only liquidity, but also asset utilization, etc. Whoever can deliver greater returns to fund providers will have a chance to win this phase of DeFi competition.

Lever has focused its margin trading platform on three areas: asset utilization, liquidity, and user experience. If it can achieve its goals through the mechanisms described above, it will be beneficial for it to gain its position in the next new phase of DeFi competition. The future evolution of DeFi will be deeper and more exciting.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/lever-in-one-easy-to-read-article/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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