Second-Generation Lending Protocol Lendefi Is Coming for Compound’s Crown
PRESS RELEASE. Lendefi is a brand-new protocol aiming to provide opportunities such as lending and borrowing, leveraging and investing.
Lendefi is an innovative second-generation DeFi lending protocol that allows lenders to earn interest on stablecoin deposits, and for borrowers to obtain undercollateralized loans (UCLs) to invest in popular digital assets.
The main advantage of Lendefi is the possibility of undercollateralized loans, meaning you can borrow more than the collateral (serving as a type of security) you provide. Existing lending protocols, for their part, allow overcollateralized loans, meaning users are limited to less than the value of the collateral when borrowing. The example scenarios below illustrates the difference.
• Undercollateralized: You can provide collateral worth 50,000 USD and borrow another asset worth more than 50,000 USD.
• Overcollateralized: You can provide collateral worth 50,000 USD and borrow another asset worth less than 50,000 USD.
With undercollateralized lending, the borrower can leverage their available capital while pursuing investment opportunities that would previously have been beyond reach. Clearly, this will make digital assets more intriguing to investors accustomed to accessing such mechanisms in traditional markets.
Lendefi vs Compound
Undercollateralized borrowing being the primary point of divergence as compared to other lending protocols, the mechanism of ensuring both parties’ trust is different. While Compound allows loaned assets to be withdrawn, and thus requires overcollateralization to protect the lender from default, Lendefi keeps the collateral escrowed within the protocol.
While the interest rate offered by Compound is variable, Lendefi provides a fixed rate for borrowers and keeps it variable for lenders. Interest rates will be updated periodically by the DAO. Because the costs for borrowing are predictable, and thus easier to integrate into risk management processes or trade calculations than variable rates, borrowers are likely to find Lendefi attractive.
Interoperability
The interoperability of Compound and Lendefi gives users the option to borrow with a wide range of assets. For example, a borrower could utilize Compound to obtain an overcollateralized loan for USDC using BAT as collateral, then use USDC on Lendefi to take out an under-collateralized loan to invest in wBTC. This interoperability may become deployed as a third-generation protocol itself.
Similarities
While the mechanism of ensuring trust between borrowers and lenders varies between Compound and Lendefi, they are based on the same governance principles and restriction to popular assets.
Governance model
Both protocols are governed by a decentralized autonomous organization (DAO) which enables complete community and stakeholder control of the protocol.
Restricted to popular digital assets
Both protocols are restricted to popular digital assets. In the case of Lendefi, the selection is based on Uniswap liquidity, and further digital assets can be added as per the decision of the Lendefi DAO, as with Compound’s DAO.
Lendefi is a game-changer
Every protocol provides different use cases. By enabling lenders to earn interest on stablecoin deposits, and giving borrowers access to attractive undercollateralized loans, Lendefi can make a major splash in a rapidly expanding industry.
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