Leveraging Masters on DeFi Building Blocks Lever Network Funding Efficiency Wise

If I had to describe Lever in one sentence, I would describe it as a master of leverage on DeFi blocks.

The Dawn of the Derivatives Explosion

What is the most promising track for the crypto world in 2021?

A subjective answer is Layer2 and the decentralized derivative DEX.

2020 is the first year of the DeFi explosion, and the lending and AMM tracks have all emerged as relatively clear leaders and first-tier projects, and strong spot DEX tokens such as UNICAKESUSHI have already testified to the wealth effect of the track, yet in the derivatives space, decentralized exchanges are still in the exploration stage.

With the volume of derivatives in traditional financial markets more than a dozen times that of spot, and the volume of derivatives traded on cryptocurrency-centric exchanges perennially several times that of spot, why is derivatives trading in the DeFi space still in the doldrums?

First, the current aggregation model still needs to be improved.

For example, the traditional order book model is time-consuming and laborious, with higher requirements for liquidity and aggregation efficiency, and is more suitable for centralized exchanges.

At present, Ether Layer 1 is not enough to support the order book model, so Layer 2 has become the hope of many platforms, and some platforms choose to develop in high-performance public chains other than Ether, but the lack of asset sinking will still limit the introduction of liquidity.

The AMM model, however, still needs to be optimized, one is how to improve the efficiency of capital utilization, and second, how to ensure that the price mechanism will not fail under extreme market conditions. For example, in the plunging market on April 18, the price of Perpetual Protocol Ether perpetual contract once fell to $900.

Overall, compared to spot, derivatives are more complex in design and require better risk control, margin trading, clearing mechanisms, and price prediction machine mechanisms.

However, the opposite of problems and shortcomings is exactly the opportunity.

Hou Lin, founder of Distributed Consensus, believes that 2021 must be the year when DeFi derivatives trading protocols explode.

In his opinion, compared to centralized derivatives, DeFi derivatives protocols have the following 5 major advantages.

1) The absence of a centralized exchange operator makes it cheaper in the long run.

2) Access without permission making it censorship resistant and no one can control, change and close the trading protocol.

3) No counterparty risk as users hold their own funds.

4) no licensing of transaction types, any asset with a public feed can be traded.

5) No withdrawal limits or trade size restrictions.

As a result, the DEX derivatives trading market is considered the next trillion dollar opportunity and the birthplace of the next unicorn.

Standing at the dawn of the derivatives DEX explosion, the old derivatives platforms represented by dYdX, as well as innovative AMM platforms such as Lever Network, are getting more attention and expectations.

Derivatives DEX River and Lake

Throughout the cryptocurrency derivatives track, it mainly includes: leveraged trading, futures contracts, options contracts and leveraged tokens.

In the centralized world, derivatives trading is dominated by futures contracts, but in the world of DeFi, leveraged trading is much simpler and more straightforward.

The lending agreements in DeFi lock in funds to provide natural liquidity for leveraged trading, and leveraged trading supports more currencies than contracts, quickly allowing investors to quickly experience multi-currency derivatives trading in DeFi.

DeFi leveraged trading is all around us. For example, MakerDAO can be seen as a leverage tool where users can pledge ETH in exchange for DAI, thus Uniswap and other DEX to buy more ETH and achieve leverage, however, such an operation is too cumbersome, so there is an opportunity for a leverage trading platform.

Currently, the main players in the leveraged trading circuit are veteran player dYdX, upstart platform Lever Network, and Kashi under the Sushi platform.

Created in 2017, dYdX belongs to the same period as the head DeFi protocols such as MakerDao and Aave.

dYdX is unique in that it still uses an order book, with off-chain order book and on-chain settlement transactions. Its leveraged transactions come with a lending function, where funds deposited by users automatically form a pool, and if there are insufficient funds during a transaction, they are automatically borrowed and interest is paid.

However, currently dYdX’s leveraged trading is only friendly to users with large transactions. If a single order is less than 20ETH, you can only choose to eat the order and have to pay a higher order eating fee for small orders to cover the cost of Gas.

A very obvious shortcoming of dYdX is that the order book model naturally limits the injection of external idle assets.

Due to liquidity constraints, dYdX only offers spot and leveraged trading services in ETH, BTC and LINK, which does not fully meet the diverse investment needs of users.

Kashi, a lending product under Sushi, can quickly achieve 0.25x to 2x leverage trading with one-click leverage. Its innovation lies in the flexible lending rate model as well as, not realizing the capital pool, using lending token pairs to achieve risk isolation, but this also leads to insufficient liquidity.

Given the shortcomings of dYdX, the creation of a more liquid, highly liquid derivative DEX became a market opportunity to be anticipated, and the Lever Network was born out of demand.

Lever Network can be seen as a combination of AAVE and Uniswap, supporting users to trade leveraged assets such as spot in the DeFi protocol, allowing users to collateralize, lend, leverage and trade long or short any underlying asset in one go, allowing investors to hedge their risk through spot leverage in a stacked leveraged DeFi world.

Unlike platforms like dYdX that build their own liquidity, Lever Network has the advantage of absorbing external liquidity for its use, resulting in extremely high capital utilization and a convenient and secure trading experience.

Leveraging Masters on DeFi Building Blocks Lever Network Funding Efficiency Wise

At present, Lever has gone live on the Ethernet mainnet and Coinan Smart Chain (BSC), and opened liquidity mining, there are two ways to get the platform token LEV.

(1) Users deposit or lend assets ETHBNBUSDT and other mainstream assets, for example, in the BSC chain, deposit and lend BNB with a global APR of 100.48%.

(2) Users also earn more LEV by providing liquidity for LEV in SushiSwapPancakeSwap and then pledging LP tokens, which currently has a BUSD-LEV APR of 248%.

In addition to earning LEV unilaterally, Lever has now entered into a partnership with SushiSwap to launch the latest phase of Onsen farm, where users can also pledge LEV- WETH LP to SushiSwap to earn Sushi, and the two sides will further cooperate to “double dig” in the future.

As of May 31, Lever has deposited $19,290,153 in assets and lent $11,616,213,000 in assets.

Leveraging Masters on DeFi Building Blocks Lever Network Funding Efficiency Wise

According to the official disclosure, Lever Network is expected to officially land on the Firecoin eco-chain in early June, making it the next city in the multi-chain ecology.

By then, Lever Network will be three chains in parallel, becoming a multi-chain lending and leverage trading platform.

Capital Efficiency is King

How to evaluate the advantages and disadvantages of a decentralized derivatives trading platform?

Similar to DEX for spot, capital utilization is always the core metric.

Improving capital utilization is the only way to leverage higher leverage effects and gain higher profits. Simply put, by allowing assets to circulate frequently, capital utilization can be increased to capture more financial value for the trading platform and its tokens.

A commonality among decentralized exchanges is the requirement for various forms of lock-in to increase the TVL (total value of lock-in) through liquidity incentives.

TVL, like a country’s GDP, is the foundation for development, and TVL provides the necessary liquidity, insurance, underlyers, and counterparties for projects.

But it is not enough for a country to have a GDP, it has to pursue the quality of development. Increasing TVL is only the first step, making funds flow is the key, only the capital utilization, the assets in which users and liquidity providers lock up can bring higher trading volume and transaction fee share, capturing value, otherwise it is just false prosperity.

However, in the DeFi world, TVLs are largely focused on lending agreements.

According to Defipulse, the top three lending protocols, MakerAaveCompound, occupy the top three in the Ether TVL ranking, with a total locked-in value of over $33 billion, followed by UNICRV, but with TVLs clearly a notch behind.

Leveraging Masters on DeFi Building Blocks Lever Network Funding Efficiency Wise

Lending agreements have the highest TVL in the DeFi world, but the efficiency of capital utilization is relatively low.

According to statistics, the annualized interest rates of stable coins on DeFi lending platforms are between 5% and 12% for a long time, while the annualized interest rates of WBTC, ETH and other mainstream assets are only less than 0.1% to 1%, so on the one hand, a large amount of funds are only deposited and not effectively utilized, and on the second hand, the tokenized pledged certificates obtained by users in lending platforms have a large asset value in themselves and are not reasonably The tokenized pledges obtained by users in the lending platform are not reasonably utilized.

For DEX, especially for leveraged trading DEX, there is a greater need for liquidity.

Lending agreements have TVL, but lack liquidity efficiency; DEX transactions are frequent and lack TVL, how to bridge the gap between the two?

Lever Network’s innovation lies in fully connecting lending agreements and leveraged transactions, combining them to provide direct borrowing usage scenarios and leveraged transaction services to maximize capital utilization efficiency.

For depositors, any idle assets can be deposited into Lever to earn interest or take out a mortgage while receiving liquidity mining proceeds (native LEV tokens).

It is worth noting that aToken, cToken, etc., which are tradable pledges of assets obtained by users through lending agreements such as AAVE and Compound, can also be pledged at Lever for interest and can also be used as collateral for leveraged transactions.

This undoubtedly revitalizes a large amount of sunk assets in the Lever, drawing from the largest pool of liquidity in the DeFi world, allowing them to circulate and become collateral assets for leveraged trading.

For traders, liquidity is always the first priority for trading.

To ensure that the platform has sufficient trading liquidity, Lever has introduced external automated market makers such as UniSwap, Sushiswap and Pancakeswap.

Currently, Lever’s pool offers up to 3x leverage to open positions and users can freely choose to go long or short.

It is worth mentioning that during the extreme down market of 519 and 521, Lever Network did not experience a penny of position penetration or platform loss.

In addition to the common WBTC and ETH, Lever also supports other common ERC20 token assets such as AAVE, UNI and other top DeFi tokens, as well as other long-tail assets due to the ability to bring in external liquidity.

This also gives Lever a broader audience than dYdX.

dYdX is similar to a super-competent but always solitary schoolmaster who relies on himself for everything and gradually builds up trading liquidity through a self-built order book, but in the order book model, neither the depth of liquidity nor the trading experience and cost are advantageous compared to centralized platforms.

Lever is younger, but smarter, and its cleverness lies in giving full play to the characteristics of DeFi’s composability, building blocks, absorbing funds from lending agreements, integrating all the large DEX liquidity in the market, and building a trading edifice with high capital utilization and sufficient liquidity in a quick cold start.

From Lever, we see the beauty of DeFi’s composability.

If I were to describe Lever in one sentence, then I would describe it as: the master of leverage on the DeFi building blocks.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/leveraging-masters-on-defi-building-blocks-lever-network-funding-efficiency-wise/
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.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2021-05-31 09:44
Next 2021-05-31 09:49

Related articles