Dank Protocol: The first "fixed + variable" interest rate hybrid agreement, improving the utilization rate of DeFi funds

Decentralized lending, as one of the earliest and hottest sectors in the DeFi market, has remained prosperous for a long time. Data shows that as of September 2, the total deposits of DeFi lending agreements exceeded 70 billion US dollars, a record high.

But so far, the form of DeFi lending is extremely single, and the major lending agreements are basically "variable interest rates." In contrast, the traditional lending market mainly focuses on "fixed rate" loans (mortgage loans, car loans, consumer loans, etc.), and the development of DeFi lending in this area is very weak. Since fixed-rate lending can reduce risks, it is more familiar and attractive to traditional financial players. This has also become the only way for DeFi to open up the incremental market outside the circle in the future.

On the evening of September 23, Shadow, the co-founder and CTO of Dank Protocol, was a guest on the Odaily Chaohua community, explaining in detail how to improve the utilization rate of funds through the "fixed + variable" interest rate hybrid agreement. "Through the combination of fixed interest rate + variable interest rate, the variable interest rate deposit and loan market and the fixed interest rate income expectation trading market are created. On the basis of the variable interest rate of the Dank agreement, the fixed interest rate controlled by the algorithm mechanism is innovatively adopted. Through The combination of the risk guarantee pool and the order pool brings users a more diversified income portfolio."

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The following is a record of the community dialogue, organized by Odaily

Odaily: In the DeFi market, lending has always been a hot sector, and Dank Protocol, as a leader among them, has also attracted much attention. First of all, I would like to ask you to introduce the project (positioning, purpose, etc.) and why you created Dank Protocol (opportunity & background)?

Shadow：Ok, Dank is a license-free protocol based on Ethereum smart contracts, which aims to solve the problem of low returns in DeFi and build a fixed-income market. Allow any user using the protocol to obtain benefits. Users can also release the forward income of Token at any time to obtain instant fixed income. Create a scientific and sustainable foundation for finance.

The Dank Protocol has been secured and audited by public auditors. The protocol is fully public, allowing anyone to interact with contract intelligence on Ethereum with a user interface client, API, or direct network. Ability to build any service or application to interact with the protocol and access Dapp products.

Speaking of the foundation of creation, since 2020, the DeFi market has experienced explosive growth. According to the data platform DeFi Pulse, the total locked value (TVL) of digital assets in DeFi services has grown from less than US$1 billion in 2019 to US$15 billion at the end of 2020, and reached US$95.94 billion in early September 2021. peak.

Among them, we see opportunities and see the dawn of an alternation between old and new finance. The total lock-up of the three major lending agreements Compound, Aave, and Marker has returned to the high point before 519. More and more traditional financial institutions and funds are Focusing on DeFi, a new trust-free and permissionless financial model will shine in this crisis, taking over the baton of the traditional financial black box, and the new order will prosper!

At the same time, such a future was described in the cover report of "The Economist": Falling into the Rabbit Hole - The Promise and Risk of DeFi. A new financial model represented by DeFi is entering a new era. In this era, three novel but flawed visions of tech platforms, big government, and DeFi will compete and converge, each embodying a technical architecture and ideology about how the economy should work. Like the internet in the 1990s, no one knows where this revolution will end, but it will change the way money works, and it will change the entire digital world.

The dream of building a low-friction financial system is just the beginning. DeFi is expanding into more ambitious areas. DeFi has a broader space in the asset management market. This is also the original intention and ambition of Dank, creating a more financial Efficient and transparent market!

Odaily: At present, the lending competition is fierce and homogeneous, and there are many players. Especially on Ethereum, the head structure of the lending sector seems to have been fixed, and Aave, Compound, and Maker have long occupied the top three. Compared with competing products, what do you think are the differentiating advantages of Dank Protocol?

Shadow：Well, the current needs of the DeFi lending market mainly include:

• To meet the capital needs of trading activities: including arbitrage, leverage, market making and other trading activities, this is the most important rigid demand.

• Obtaining passive income: It mainly satisfies those investors who hold digital assets for a long time and hope to generate additional income.

• Obtaining a certain amount of liquidity: Mainly because start-ups in some industries have some short-term liquidity needs.

At present, the lending platforms in DeFi are basically mortgage loans. By overcollateralizing one digital asset, another asset is lent. For example, ETH with a mortgage value of 2,000 US dollars can be loaned with 1,800 US dollars in USDT. This is different from the traditional Mortgage loans are similar.

Compared with the long-term top three lending agreements such as Aave, Compound, and Maker, the advantages of Dank Protocol differentiation mainly lie in:

1. More secure and stable.We stand on the shoulders of giants and learn and innovate on the basis of previous explorations. Dank Protocol adopts mature mechanisms and models that have been proven by the market to avoid risks. The first priority is safety, which adds security to the protocol.

2. Technological innovation.We found that the main shortcoming of the current over-collateralized loan model of DeFi lending is the low utilization rate of funds. Credit loans are obviously more efficient than mortgage loans, but in the current anonymous blockchain environment, it is difficult to achieve. Aave's Flash Loan is the first to realize unsecured loans in the blockchain world. It is realized by utilizing the unique characteristics of the blockchain. It needs to complete the loan and repayment within one block, otherwise it will be invalid. The applicable scenarios are very limited, and there are technical barriers, and ordinary users cannot participate.

Therefore, on the basis of ensuring the safety of funds, we release the liquidity of funds. Through the combination of fixed interest rate + variable interest rate, we create a variable interest rate deposit and loan market and a fixed interest rate income expectation trading market. Based on the variable interest rate of the Dank agreement In terms of innovation, the fixed interest rate controlled by the algorithm mechanism is innovatively adopted, and through the combination of the risk guarantee pool and the order pool, it brings more diversified income combinations to users.

Dank-Fixed rate market is an open source fixed-rate agreement based on the Dank lending agreement. It is the best tool for users to obtain stable risk exposure. In Dank-Fixed rate market, holders of income-generating assets have the opportunity to generate additional income And pre-lock future income, while allowing traders to directly access future income streams without the need for underlying collateral.

3. We are also advancing the credit rating mechanism combined with NFT.According to the user's on-chain lending activities, credit ratings are given to users, and the mortgage rate of users is reduced through credit activities, bringing more asset liquidity to users.

4. The Dank protocol mainly lays out Layer 2.On the basis of maintaining the orthodoxy of the project, Layer 2 has greatly lowered the gas threshold for user operations, especially for small and high-frequency lending needs. Because less gas is burned, small funds can also obtain higher returns.

All in all, unlike COMP and AAVE, DANK is more focused on the fixed interest rate, capital efficiency and interest rate derivatives market. At the same time, DANK proposes a forward interest rate contract swap model based on the floating interest rate market. Users can release d-token at any time Forward income, instant fixed income, and natively integrated in the Dank protocol to ensure the security of user assets.

Odaily: At present, almost all DeFi lending projects are overcollateralized with variable interest rates (that is, floating interest rates), and you just mentioned that Dank Protocol has launched a fixed interest rate market in addition to supporting variable interest rates. Why did you make such a choice, what do you think are the advantages of the fixed-rate DeFi protocol, and what are the development prospects?

Shadow：Fixed interest rate or fixed income occupies a very important position in traditional financial markets around the world. If you don’t understand, we can look at the volume of U.S. treasury bonds to clearly understand this huge market. U.S. treasury bonds currently represent The volume is $28 trillion. Similarly, it is the same in the next market of DeFi, especially the current top financial institutions in the world want to comply with blockchain finance and applications in order to engage in such businesses.

fixed rate model

Fixed rate (fixed rate) allows participants to lock in a predetermined interest rate without having to bear the risk of interest rate fluctuations. By tokenizing asset return certificates, capital efficiency is greatly increased. When the price of assets fluctuates violently due to the influence of time, savers can sell the savings interest rate (that is, the income) of such assets in advance. Buyers, on the other hand, can hedge these yields without purchasing the underlying assets, and obtain risk exposure to exchange rate fluctuations in a more effective capital way. Sellers, that is, borrowers, can obtain greater flexibility without sacrificing interest rates. As well as saving time and cost, buyers can buy the underlying assets at a discount.

core advantages

Dank-Fixed rate market is anchored by algorithms rather than artificially setting interest rate parameters, creating liquidity through market supply and demand, providing users with a variety of fixed income methods, using the order book model for all market participants (liquidity provides recipients and recipients) to provide customizability and high capital efficiency to help markets that need to determine returns to determine returns; at the same time, drawing on Pendle's coupon AMM that uses time depreciation to help liquidity providers avoid theta decay and help income that needs to be realized quickly Through the rapid conversion of the liquidity market, the method of liquidity incentives is used to help liquidity providers earn profits, and at the same time, innovative methods of lossy mining are used to reduce system risks.

The fixed interest rate has cleared the barriers for traditional capital to enter DeFi. Capital needs a certain income, so that a fixed value for future income can be given, which is conducive to the entry of traditional capital and reduces the risk of income fluctuations.

In addition, the more important thing is that the fixed rate agreement provides more income options for borrowers. They can choose to choose a fixed income expectation to sell, or they can generate interest through lending activities to obtain income. They are active in the fixed interest rate market. Sometimes, the principal and income can be auctioned and sold separately through high-level operations, so as to quickly obtain income and carry out circular farming arbitrage. However, this is a high-level operation. For users whose risks cannot be controlled, it is recommended to simply lock in immediate benefits.

Odaily: In your opinion, which groups will become potential customers of Dank Protocol?

Shadow：The user group of Dank is very clear, and the scope is also very broad. First of all, Dank is the infrastructure of inclusive finance, and there is no access restriction, so in theory, all people interested in the DeFi field or the lending field are potential users. Among them The most important thing is that users who have participated in DeFi projects and have high requirements for risk and return are currently the preferred target users of the Dank protocol, because they have the basic knowledge and literacy to participate in DeFi projects, and have basic skills such as operating wallets, followed by traditional finance. Investors and institutions in the field, because compared with traditional financial black-box operations, DeFi projects are more open and transparent. In addition, due to the hot market and rising demand, the income of many DeFi protocols far exceeds traditional financial investment, so more and more Many institutions and investors are focusing on the DeFi field, so we have also equipped DeFi players and professional institutions with corresponding participation targets and tools to help them enter the Dank protocol market.

Odaily: I learned that Dank Protocol’s fixed-rate market allows participants to peel off the yield on the underlying asset and trade that yield separately as a token. Can you give us the details and how it works?

Shadow：The specific implementation method is as follows. First, let me show you a schematic diagram:

for the seller

First of all, the Dank-Fixed rate market is scalable. Not only can the Dank income token dToken be minted as a certificate, but the asset certificate cToken and aToken of deposit agreements such as AAVE and Compound can also be locked in the Dank-Fixed rate market smart contract in casting.

• Seller users need to first select a deposit certificate, such as dToken

• Minting cost certificates and income right certificates during the lock-up period: dOT and dYT

• Put the dYT pending order at the price to determine the profit to the order book trading market

• You can sell dYT in DEX to get fixed income

• Redeem the principal after dOT expires

Buyer/ Investor

Traders can buy dYT and arbitrage dYT due to interest rate fluctuations

The specific functions are as follows:

Cast Mint

By marking the asset certificate, two kinds of certificates are generated from the asset certificate, dOT and dYT. dOT represents the ownership of the new underlying asset generated by locking the asset certificate. Open transfer, and support dOT transaction pool and recasting), dYT represents the future rate of return in the same period.

Exchange Swap

Dank-Fixed rate market allows exchange of dYT and USDC to maximize yield and capital efficiency. The exchange function adopts the hybrid mode of order book mode and AMM.

Order book: The seller is allowed to place an order for dYT with a fixed income expectation. After the transaction, the seller will obtain a completely fixed income expectation, and the buyer will purchase positions according to the income expectation, which can effectively control risks. The order book model is used for all market participants (flow Sex Providers and Receivers) provide customizability and high capital efficiency.

AMM: Both parties of the AMM transaction are interacting with the liquidity asset pool on the chain. Liquidity pools allow users to seamlessly switch between tokens on-chain in a fully decentralized and non-custodial manner. Liquidity providers, on the other hand, earn income by obtaining dYT and transaction fees, and transaction fees are based on the percentage of their contribution to the asset pool. Using time-depreciated coupon AMMs helps liquidity providers avoid theta decay.

Whether it is an order book or an AMM pool, Dank-Fixed rate market supports two-way trading of assets, that is, users can exchange dYT and underlying assets in the trading pool and order book at any time, currently mainly USDC.

Redeem redemption

Principal certificate dOT holders can redeem the locked underlying assets at any time, as long as the following conditions are met:

To redeem the subject matter after the contract expires, only dOT is needed.

To redeem the underlying before the contract expires, equal amounts of dOT and dYT are required.

Expired contracts can be rolled forward.

Advanced: dOT auction market

dOT and dYT, the principal and income can be controlled as two different tokens.

dOT can be auctioned, the auction price is set by the holder according to the expected price, and the buyer bids within a limited time. After the auction is over, the ownership of dOT will be transferred, and the holding dOT and the corresponding dYT can be exchanged for the target upon expiration. assets.

After the dOT auction is completed, the proceeds can be used to supply, carry out circular casting, and increase the risk position. In order to obtain more profit positions, users can choose to auction dOT but hold dYT, so that the dOT auction can obtain the underlying assets, and the exchanged underlying assets will be reduced. , while the dYT held is still generating interest. At this time, the seller's market can re-operate the exchanged underlying assets, which can greatly increase capital efficiency under the condition that the auction price is controllable and the income is guaranteed.

When the seller auctions the dOT, the buyer can exchange it for the corresponding underlying asset when it expires, and earn the price difference. For the seller, selling dOT instantly can increase capital efficiency; and lending dOT circularly can add leverage to the interest rate. However, the seller needs to bear the risk of betting, that is, whether the discount price of the auctioned dOT can cover the leveraged interest rate.

Odaily: You just mentioned that the Dank Protocol fixed rate market will generate two tokens in operation: dOT and dYT. In fact, in order to support the normal operation of this model, it is inseparable from the provision of liquidity, otherwise the entire system will collapse. Can you tell us how you increased the liquidity of these two tokens?

Shadow：Liquidity fund pool is an important balance section of Dank-Fixed rate market. Liquidity is a risk fund pool. Users invest in dYT and USDC to form a liquidity pool, and earn Dank token income by doing LP. Users can invest in USDC or dYT, or both Two types are used to provide sufficient liquidity.

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Odaily: Regarding liquidation and risk control, what measures has Dank Protocol taken?

Shadow：Under extreme market conditions, some liquidity may shrink sharply, resulting in the inability to liquidate certain currencies. For the safety of users' assets, the Dank protocol reasonably limits the maximum deposit market size of a single currency with high risk, and only deposits can be made for specific tokens to obtain income but cannot be mortgaged to ensure the security of the protocol. The specific parameters are as follows:

Odaily: In terms of collateral, what underlying assets does Dank Protocol support? What are the criteria for the selection of these assets, who decides the mortgage rate and mortgage coefficient of the collateral, can you introduce it?

Shadow：Dank Protocol supports mainstream and mature encrypted assets. These assets have passed the verification of time in the encrypted market, and adopt strict ratings for assets, evaluate their risks from different dimensions, and adopt different loan collateral parameters for assets with different risk levels , we will continue to add new assets in the future, all of these assets must comply with the risk assessment framework, and through community discussion, voting and publicity of results. This process ensures that the entire agreement is as transparent and fair as possible.

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Odaily: As mentioned in the white paper, DANK is the native token of the Dank protocol. What are its application scenarios and value in the project ecosystem?

Shadow：text

Odaily: Can you give a detailed introduction to the economic model of DANK tokens, future issuance plans and listing situation?

Shadow：The details of the tokens have not been disclosed yet, but we will release relevant details soon, and once we confirm it, we will make it public as soon as possible, stay tuned!

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Odaily: What institutional financing has Dank Protocol obtained so far? Can you introduce the financing situation and partners?

Shadow：text

Odaily: After listening to your vision for the future of the project, everyone is also curious about the team background of Dank Protocol. Can you introduce the background of you and the team in detail?

Shadow：The team is composed of experts and developers with years of practical experience in the encryption field:

• Philx Peng, co-founder. The founder of ChainBB News, he has also successfully led and established several cryptocurrency exchanges. One of the early investors and participants in the DeFi field, with in-depth research and understanding of DeFi protocols.

• Amber, CFO, previously worked at Accenture, Accounting and Finance at LSE.

• 0xShadow, co-founder, back-end engineer. Proficient in the development of Python and Solidity smart contract languages, understand the mainstream DeFi product architecture, have in-depth research on economic model design, and once led the technical team to serve as the CTO of a well-known project.

• Stanley, co-founder, head of strategy. A marketing and operational strategy expert who has led business and marketing development at some well-known crypto exchanges.

• Lan, co-founder, operations. Former co-founder of a cryptocurrency exchange, good at public relations and operations, mainly focusing on Southeast Asia and the Pacific market, double bachelor's degree in human resources and event management.

• Albert, a senior front-end engineer, is proficient in mainstream front-end frameworks, React/VUE/Angular front-end technology development, proficient in NodeJS, and participated in the development of multiple DeFi protocols.

• Jayson, a senior full-stack developer, a senior architect with more than ten years of development experience, JAVA, Python, Rust and other technology stacks, participated in and led multiple blockchain projects.

• Katherine, Community Leader, specializes in community development and management strategies. He once led the marketing team and participated in blockchain projects.

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Odaily: Can you introduce the development plan and roadmap of future products in detail?

Shadow：The floating rate lending agreement has been deployed on the Kovan test network and the Arbitrum test network. The interaction and business tests were held in the early stage, and the number of participating users is more than 1,800. The agreement has been submitted for audit, and the final audit report is expected to be available on the 27th.

The fixed-rate agreement section has released the Demo test version on the official website, and will soon disclose code information and third-party audit cooperation on Github. It is expected to conduct public testing activities in early October.

At the same time, DANK has been researching models related to fixed interest rates, new protocol development and Layer 2 for the past few months, and in fact there are more than that.

At present, the basic loan of DANK is about to go online. Next time, we have submitted the code to Certik for audit and are waiting for the final report from the audit agency.

In addition, our fixed interest rate Demo has been made public. After refining the details and related security audit tests, we expect the fixed interest rate protocol to be launched around mid-October.

Market plan Here, the current market size of DeFi lending and income positions is about 50 billion US dollars. In the next stage, we will be clearer that the export of the fixed interest rate market will go even larger. In terms of PR, we have already started to make brand plans on a global scale. The next step is community building and some strategic partnerships. In the future, we will share products about DANK with more communities.

And we have plans to find community leaders of similar nodes in various regions to be responsible for the construction of local Dank communities and the arrangement of online and offline activities. If you are interested, please contact us.

In the future application here, DANK will be integrated by more third parties, credit loans, identity certificates, etc.

For the future, for now, DeFi is already an irresistible trend. DeFi is already the biggest financial technology revolution after Internet technology. In the future, it may be unlikely that centralized banks such as Citigroup, Morgan, and Goldman Sachs will exist. Most of them are similar to DANK, Compound, AAVE, etc.