The notion of decentralized finance (DeFi) has gained credence in Ethereum circles over the last year as the smart contract network’s most significant value proposition. Originally fueled by the outsized growth of MakerDAO and its over-collateralized stablecoin, Dai, DeFi has reached a fever pitch and is rapidly becoming an instrumental development in the progression of modern finance.
Numerous startups are pioneering the push towards a more open financial paradigm, where access to P2P borrowing/lending instruments, fixed income products, derivatives markets, and more are materializing seemingly every day. The open nature of the movement reduces friction across touchpoints in conventional financial interactions and is proving that it is not just a fad.
In fact, DeFi’s momentum is so robust that some analysts have even gone as far as to claim it engenders prohibitively expensive costs to fork Ethereum again with any success.
With so much ongoing innovation and value exchange on Ethereum, one DeFi platform, Constant, has become a useful prism for evaluating just how much potential the sector has. Recently integrating its Flex deposits with leading DeFi liquidity pool provider, Compound Finance, Constant sheds a spotlight on some bright spots in the DeFi ecosystem.
Open Order Books & Cherrypicking Deals
At the heart of DeFi lending protocols, stablecoins, derivative instruments, and other products are competitive rates, accessibility, and transparency. The fragmented nature of DeFi platforms has led to an increasingly competitive environment, where open protocols, like secured P2P lending on Ethereum (e.g., Constant), offer varying rates for collateralized crypto assets.
Many of these protocols seek edges outside of appealing rates that significantly outpace banking interest rates too.
For example, Constant’s order book, Constant Pro, is an open order book that functions as a trading hub for a secured, selective P2P lending market. In particular, it operates as both a type of liquidity layer and an emerging class of aggregators that are user-facing apps routing optimal liquidity to users.
Constant works by enabling borrowers to stake liquid capital via over-collateralized crypto assets (e.g., Ether) based on an LTV ratio. Subsequently, borrowers can “cherrypick” the best deals enumerated on Constant’s interface, selecting the best interest rates that are posted independently by each lending peer. The opposite is similar for lenders, who can choose to set custom interest rates and terms, which borrowers can then decide from.
Constant is actually the only secured P2P lending platform in the DeFi ecosystem that enables such cherrypicking of rates too.
The model encourages competitive rates and is precisely why Constant and other DeFi lending platforms offer interest-bearing accounts on assets like stablecoins (e.g., USDC) at appealing interest rates ranging from 5 – 15 percent.
Combined with over-collateralization of the underlying asset, lenders can be assured of principal and accrued interest preservation in case of volatile prices in the underlying collateral or borrower default.
Open access to platforms like Constant is in the best interest of most mainstream investors in many cases too. The transparency and accessibility of DeFi help to mitigate much of the costs and risks associated with traditional options like returns with equities and bonds where intermediary fees run high and average low-risk equity returns tarry behind typical DeFi lending returns.
Incidentally, bonds are even turning negative yields in Europe, providing further incentive to explore more rewarding DeFi options.
Expanding Product Offerings
One of the trends to observe in DeFi in the near future is the accumulation of various product offerings by platforms like Constant.
Constant recently added staking returns for TOMO to its services, accepting privacy-oriented BEAM as collateral for low-cost loans, and integrated its Flex accounts with Compound’s $152 million liquidity pool of crypto assets as collateral for its users.
Such platform flexibility is a cardinal feature of DeFi, and portrays a promising future for people seeking financial services outside of legacy banking and credit structures.
With only an Internet connection and collateral necessary, users can tap into deep liquidity and creative financial instruments through protocols like Constant.
The narrative underscoring DeFi is one of inclusion, and the transparent flexibility of borrowers and lenders to set custom terms and match instantly on interfaces like Constant is representative of the movement’s potential. DeFi is not going away anytime soon, and Constant is a testament to the blossoming maturity of crypto-based finance.