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Decentralized finance (DeFi) offers people entry to highly effective monetary merchandise and markets, reminiscent of crypto lending, wherein customers lock their crypto belongings as collateral for a mortgage.
Nonetheless, present DeFi lending apps have a lot of inefficiencies. Cosmos-based DeFi monetary suite Nolus Protocol goals to handle these inefficiencies with a brand new idea, the DeFi Lease. Right here’s the way it works.
What’s the Nolus DeFi Lease?
The DeFi Lease applies the mannequin of leasing from conventional finance to the world of decentralized finance.
Typical leasing allows prospects to safe belongings by paying a portion of their whole worth upfront; they’ll use them at some point of the lease, and take full possession after settling the mortgage.
With the Nolus DeFi Lease, customers can deposit cryptocurrency into the Nolus Protocol and obtain as much as 150% financing on the preliminary funding, gaining extra publicity to tokens whereas addressing crypto’s stringent over-collateralization necessities.
What issues does Nolus clear up?
In standard crypto lending, customers make use of overcollateralized loans, locking up the next worth in crypto as collateral than they intend to borrow. Whereas this limits the danger of liquidation, ought to the collateralized tokens drop in worth, it introduces inefficiencies.
Overcollateralized loans lock up collateral that could possibly be used to reduce counterparty threat. DeFi leasing on Nolus mitigates towards this by providing financing as much as 150% on the preliminary funding, decreasing the extent of collateralization by an element of three.
Conventional liquidation strategies employed in DeFi additionally characterize a major threat to debtors, whose complete place will be liquidated at a reduction. Nolus employs partial liquidations, which solely liquidate a portion of the collateral when the asset worth drops by round 30%, giving debtors extra time to get well their place. Nolus claims that liquidation charges for its DeFi lease are 40% decrease than the market common (all parameters equal).
Nolus additionally locks rates of interest in the mean time the DeFi lease good contract is created, addressing the difficulty of variable rates of interest on standard DeFi lending options.
Whereas parked within the good contract, the leased belongings are locked alongside the downpayment. Nonetheless, customers can put the underlying leveraged belongings to work for them, utilizing yield bearing methods whitelisted by Nolus. As soon as the mortgage is totally repaid, the person features full possession over the underlying belongings.
How does the Nolus DeFi Lease work?
A Nolus person can enhance their publicity to desired crypto belongings utilizing DeFi leasing.
First, they deposit a cryptocurrency into Nolus, borrowing as much as 150% of the preliminary down cost from the platform, denominated of their most popular cryptocurrency. Supported belongings embrace ATOM, OSMO, TIA, AKT, NTRN , wrapped Bitcoin and Ethereum, and others.
The down cost and the mortgage are robotically swapped into their desired cryptocurrency, successfully leveraging the person’s holdings as much as 150% of their preliminary funding. Each the down cost and the mortgage are saved in a sensible contract occasion, appearing as collateral—which Nolus claims reduces the margin name threat.
The person can repay the mortgage both by offering extra funds, or repaying it utilizing the belongings inside the DeFi Lease itself, assuming the worth of the asset has appreciated.
Disclaimer
The views and opinions expressed by the writer are for informational functions solely and don’t represent monetary, funding, or different recommendation.
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