Thread by @THORmaximalist

1.

Day 9/30 of @THORChain threads

Subject : Lending and borrowing on DEFI

This is pre-requisit knowledge for understanding the THORfi breakdown 🧵 ⬇️

2.

Contest :
I will give away TWO Brookr NFTs among everyone who retweets the first part of the thread.

@BrokkrFinance is having it's token launch event soon. Holders will be able to get a IDO whitelist spot or resell the NFT to someone who wants one.

3.

Today will be a bit boring, I'l covers lending and borrowing in DEFI.

This is a pretty simple to understand concept, but it's important pre requisite knowledge before diving in ThorFI's possibilities.

4.

In the DEFI summer of 2020, two blue chip lending and borrowing markets were born. @AaveAave and @compoundfinance allowed tokens to be posted as collateral as well as borrowed. Interest rates were simply a function of supply and demand, as well as a small fee to the platform.

5.

$BTC, $ETH and other blue chips enjoyed the added utility. Long term holders could take out a loan on their coins and enjoy some purchasing power, without triggering a taxable event.

6.

This led to the first wrapping of assets.

$wbtc, a wrapped token held in custody by BitGo gained a lot of traction as blue chip collateral on ETH. More than 1% of all $btc currently live on the $eth blockchain.

7.

This also started a new trend : composability

You could use an asset at multiple places at the same time.

8.

Back to lending : Eventually platforms offered the ability to post yield bearing governance tokens such as xsushi as collateral. Xsushi earned a yield automatically on its own, while being posted as collateral and giving the option to borrow against.

9.

ThorFI will enable a new level of composability : multi-chain, decentralized, redeemable, yield earning wrapped L1 assets as collateral.

The assets will be used in a multi-chain liquidity pools and earning yield while being used in other protocols.

10.

The risk of borrowing is getting liquidated :
The user can take out a loan vs collateral and only lose that collateral if they go below a certain ratio on their debt. If this ratio is hit someone else can effectively pay off their loan and take their collateral.

11.

With this model the platform assumes no risk. Independent bots take the responsibility of liquidating the collateral and arbitrage instantly that collateral to a different market, pocketing a small profit.

12.

Nobody to date has solved the idea of under collateralized lending on chain. You can’t lend someone money on line with no reputation attached unless they have more to lose than you.

13.

One of the problems with lending assets is that very few people want to borrow $eth and $btc, they're appreciating assets. @THORChain will add efficiency by using theses assets to generate yield, creating the effect self repaying loans.

13.

I don't know if any other lending platforms have income producing liquidity pools as collateral.

Borrowers can take out a capped loan vs their position with 0 liquidation risk.

When in bear market, they act as protocol owned liquidity.

14.

I skipped the part about @anchor_protocol having the most efficient use of deposited assets. I remember being amazed when I studied the design but I forgot why it was so innovative. I'm very bullish @anchor_protocol will be able to grow borrow collateral in the next bullrun.