By now, any cryptocurrency enthusiast is well aware that DeFi will reshape the worldwide financial market by enabling trustless money markets with unparalleled revenue opportunities, flexibility, and security.
Every day, the market sees the ideation and deployment of next-gen protocols aiming to empower financial freedom. One such example is Freeliquid, a DeFi lending protocol that funds stablecoin credits using liquidity pool collateral, with no interest fees, stability fees, or risk of liquidation.
Understanding Decentralized Finance Loans
While DeFi has a long road ahead, it has shown impressive capabilities for enabling passive income via liquidity pool participation in automated market makers (AMMs). Moreover, DeFi is increasingly being used for lending purposes, oftentimes by cryptocurrency traders and investors looking to tap into emerging market opportunities. Unlike the traditional banking sector, DeFi loans are free from infamous bureaucratic processes like credit checks, income checks, or identity checks. Since smart contracts rule over DeFi protocols, trustless, secure, and non-custodial operations are facilitated.
So what’s the deal with DeFi loans?
Simply put, traders with limited capital looking to access new market opportunities have two choices, with their decision being influenced by opportunity costs:
- Convert one coin to another, missing out on the potential gains realized by the former in hopes of profiting better from the latter
- Collateralize one idle cryptocurrency to fund a loan that’s then used to access the desired opportunity.
The key takeaway here is that missing out on potential gains is never desired by DeFi enthusiasts, more so when coins are already yielding a yearly profit through the means of AMM-based liquidity pools.
With Freeliquid, liquidity providers can now fund loans by collateralizing their LP tokens. In other words, the original APY is kept, and in most cases, increased considerably.
Here’s How Freeliquid Works
As a DeFi lending protocol, Freeliquid seamlessly and instantaneously funds stablecoin loans corresponding to 90% of users’ liquidity pool share. All loans are given out in USDFL, a stablecoin that keeps its value close to that of the US Dollar. Since Freeliquid only collateralized stablecoin pools for assets like USDT, USDC, and DAI, there’s no risk of liquidation in light of price movements. Furthermore, lending is free, with users only having to pay for the corresponding gas fee. As soon as the USDFL debt is repaid, access to the original LPs is regained.
To put this simpy, DeFi traders can reinvest their loans in liquidity pools, further boosting their APYs. Of course, USDFL usage decisions belong to the user, so if another opportunity arises, so be it!
At this point in time, Freeliquid’s lending product is available on the Ethereum network, where it collateralizes stablecoin pool tokens on Uniswap and Curve Finance.
However, the Ethereum blockchain has become infamous due to high gas costs that make smaller transactions impractical. Thus, it’s become the land of the big fish, being less appropriate for smaller-scale traders who are just dipping their toes in the DeFi oceans. With this being said, a recent governance community vote by FL token holders has established plans for an expansion to the Binance Smart Chain.
With billions of liquidity on popular AMMs like PancakeSwap, BSC provides most of the same benefits of the Ethereum blockchain at a fraction of the cost. Most transaction fees are as low as 10% when compared to those running on ETH, so it only makes sense for Freeliquid to enable friction-less loans for BSC users as well.
The expansion is scheduled for Q2 2021, and will come along with an ETH-BSC bridge designed to facilitate token interoperability between the two varying token standards.