DeFi Leverage Financing — The Ecosystem of Lenders and Borrowers
If you have been in the crypto space for a while, you’ll already realised there are more to just the buying and selling of cryptocurrencies that people engaged in as an investment.
Decentralized Finance (commonly known as DeFi), is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments, and instead utilizes smart contracts on blockchains.
And through DeFi, you can lend or borrow funds from others, speculate on price movements on a range of assets using derivatives, trade cryptocurrencies, insure against risks, and earn interest from your deposit just like a traditional fiat savings-accounts.
As we all know today, the first DeFi application to receive significant use is MakerDAO’s stablecoin-based lending platform. From then, numerous platforms or projects were developed, most notably with Compound Finance in mid-2020, they were one of the first to start rewarding lenders and borrowers of cryptocurrencies on its platform with native token, in addition to typical interest payments to their lenders.
The proposition presented allows lenders and borrowers to transact anonymously, and without the traditional gatekeepers of loans.
This introduction led to a phenomenon known as “yield farming” or “liquidity mining”, and during the crisis of Covid-19, the market exploded as investors hunt returns at a time when banks across the world started slashing the interest rates.
Lending and Borrowing
Lending and borrowing is one of the most fundamental and important element of any financial system. Most people at some point in life, are exposed to borrowing — education loan, housing loan, car loan, credit loan, the list goes on.
The concept is simple. Lenders provide funds to borrowers in return for interest on their deposit. Borrowers pay interest on the amount they borrowed in exchange for having a lump sum of money available immediately.
In DeFi, lending and collateral borrowing is accessible through protocols such as Compound or Uniswap.
And then, there is something new known as DeFi leverage financing, it can be found on more innovative protocols such as Levf Finance.
Levf Finance is an Ethereum based DeFi protocol that bridges the risk limitations and the capital limitations of DeFi participants, thus creating additional opportunities for both.
It is a same-asset supply and borrowing solution that addresses liquidity issues for borrowers (Yield Farmers) and low return issues for lenders (Liquidity Providers).
Unlike the typical leverage offered in the volatile crypto trading market, Levf Finance borrowers can receive up to 20x leverage on their investment capital for their exploits on yield aggregators, which will then drastically increase the all-important APY (Annual Percentage Yield) figure that their eyes are fixed on.
This simple yet creative concept brings the approach of DeFi investment to a totally new level.
Leverage financing is not trading. At the fundamental level, Levf Finance functions like a traditional bank with its matching of lenders and borrowers.
Matching the opportunities
Risk-averse crypto asset holders usually have sub-optimal returns on holdings.
With Levf Fianance, lenders can receive much higher returns and utility on their investments by allocating them to interest-bearing Treasury Pool with no lock-in period.
On the other end, borrowers are constantly looking for high APY. Those with capital limitations can access capital on Levf Finance to leverage up on cross-protocols farming strategies, and by paying interest for the borrowing to increase their APY.
Therefore, the interest rate is the crucial handshake between the lenders and the borrowers.
At Levf, the interest on borrowing is determined by a rising interest rate curve. Interest rates range from 10% to 100% according to the utilization of the Treasury Pool, the higher the utilization the higher the interest rate.
This model also ensures that there is sufficient liquidity at all times for the lenders to make withdrawals, which is one of the key factors liquidity providers in the market look out for when deciding on the investment.
Riding the wave — Lenders or Borrowers?
If you are already thinking about: should I be the lender or the borrower? DeFi leverage financing then could be the wave you’ve been waiting for.
Levf Finance offers a financial tool or rather a business opportunity within DeFi, not the typical trading platform environment guessing on the price movement.
Offering a 20x leverage on crypto investment, this definitely will appeal to the mass market where a lower capital will be sufficient to generate a substantial APY.
Farming with yield aggregators such as Yearn, Aave and Compound has been made easy with the leverage financing supported by Levf Finance. This is one big point scored to attract borrowers.
If, however, APY is not all that you as an investor seeks then probably being a lender might be more suitable.
Levf employs a simple yet sophisticated strategy for crypto players, by staking DAI into the Treasury Pool, in return you will get the interest paid by the borrowers as well as the LFI tokens mint during the 20-weeks governance forming phase.
It is understood that Levf accepts liquidity provided in DAI (only), and more cryptocurrencies will be accepted in time to come. This further stabilise the fundamental of an investment choice, avoiding volatility on the capital placed.
By becoming the early adopters of the Levf Finance project, liquidity providers are able to mine out LFI — the governance token of Levf Finance. This is in addition to the interest generated from the liquidity provided.
At time of writing, this newly launched project is ending the 1st of the 20 weeks’ governance forming phase (project launched 24th June), and already has a total value locked (TVL) at $5.831 million, with their LFI token price value at $62.46.
· The LFI token has a total supply of only 100,000 of which, 10% is pre-minted and included for the Initial DEX Offering (IDO) taking place on Uniswap (now).
*LFI Token Address: 0x4764f454dff3a0121a0d61e262344ffcd5236c4b
· A 75% will be minted over a 20-weeks (10 epochs of 14 days) phase, whereby at the end of each epoch 6,000 LFI will be minted and distributed to the liquidity providers from the DAI Treasury Pool, and a further 1,500 LFI will be rewarded from staking in the DAI/LFI UNI LP Token Treasury Pool.
*Levf DAI Treasury Pool: 0x585381aCbFAF12294C3e17fb8918CC90c930Dd22
*Levf DAI/LFI Uniswap Token Treasury Pool: 0xca850275b6d5b01Ebac6e4be29B35fEF2199e03f
· The balance 15% will be allocated to the team and operational treasury. These tokens will be unlocked alongside liquidity mining across the 10 epochs.
*Source — Gitbook: https://levfninja.gitbook.io/levf-finance/levf-sites-and-addresses
LFI token can be staked into Uniswap to add on liquidity, or simply swap out DAI as an immediate return. One special feature of the LFI token is the static reward mechanism, where 10% of any selling amount of LFI will be apportioned to existing LFI token holders.
Well, it seems Levf Finance might have just designed a flow that ensures the value of the LFI token can be appreciated by the token holders, and the logical sense can be easily interpreted as an ecosystem where
…… the token circulation creates value, the value is passed onto the token holder, the token holder increases token demand, the token demand pushes the token circulation, ……
This is much more than just lending and borrowing.
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