Using decentralized finance to take on USD-denominated debt without paying interest seems like an illusory concept, but it appears that at least one such decentralized lending mechanism already exists.
Recently enabled on the THORChain protocol, the tool reportedly even avoided liquidations and expirations – a novelty in crypto’s high-risk, high-reward DeFi sector.
The service allows interest-free loans against natively published user guarantees layer-1 assets, including Bitcoin (BTC) and ether (ETH), and there are plans to add more.
A basic explanation of how the system works is presented to the company. Blog. On the 0xResearch podcast (Spotify/Apple), Chad Barraford, Technical Lead of THORChain, dives into the details of the lending protocol and the market it is targeting.
Barraford says lending in DeFi is generally a “horrible experience”, adding: “anyone who has taken out a loan on ‘insert DeFi protocol here’ knows how stressful it is and how much it sucks.
“The vast majority have variable interest rates that could go up to 20, 30% at any time – and that’s extremely stressful. »
Barraford says many DeFi borrowers are under pressure due to the precarious state of their collateral and the ever-present possibility of liquidation. “They’re constantly checking their phone for the price of ETH or the price of anything,” fearing they’ll suffer major losses at any time, he says.
Barraford explains that the real value of THORChain’s The lending mechanism is that it is the “first stress-free lending protocol”.
“You know what the interest rates are going to be. It’s zero percent,” he said. “And you know you’re not going to be liquidated.” So you can come back in 30 years if you want and get your ETH or your bitcoin.
Barraford expects crypto holders to use the protocol to “buy a car or buy a house, go on vacation” or do something “real” with their assets to “improve the quality of life in some form or form.” another one “.
It’s aimed at a different type of user than the average “degen”. Challenge user, says Barraford, who presents a much riskier profile. He expects long-term holders to use the service rather than “someone looking to build on themselves over the next couple of weeks.”
Start small
While THORChain’s initial design focused strictly on exchanging assets in a decentralized environment, Barraford expects more use cases to be developed to diversify the protocol’s services.
“At first it made sense to use it for trading. That was the most immediate use case,” he says. “When the Internet was invented, the most immediate use case for the Internet was email: sending small digital letters to people through a series of tubes.”
“That was the original use case for the Internet, but that doesn’t mean it’s the only use case for the Internet.”
Barraford highlights the technical advantages of THORChain, including its cross-chain capabilities, lack of Exploitation of MEVs and a “card-based pricing model,” which he says is “revolutionary in terms of how it works.”
“It would be a shame to take such advanced technology and apply it only to one particular use case when it is so possible to do so many other things.”
“The important thing,” says Barraford, “is that when you try something new, you do it on a small scale at first. Verify that everything works the way you think it should and scale things up with confidence.
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