DeFi Lending Landscape

There are two predominant lending-borrowing primitives on the non-custodial scene - anonymous overcollateralized platforms like Aave and Compound, and reputation-based uncollateralized platforms like Maple and TrueFi.

The overcollateralized model comes with a number of shortfalls:

• Lack of brand equity: Borrowers are indifferent from one another, prohibiting large institutions from leveraging their brands and balance sheets for better credit facility terms.

• Capital inefficiency: Combining overcollateralization with risk of liquidation substantially increases market participants’ effective borrowing rates due to the cost of collateral and buffer allocated to the borrowing facility.

• Interest rate spikes: The interest rates on these platforms are usually a function of the protocol’s utilization. The utilization, however, is outside of borrowers’ control, implying a further possibility of forced repayment.

• Proneness to oracle attacks: Most DeFi lending protocols are cross-collateral. It takes one faulty asset to drain the whole system down (for reference, check Mango Markets and CreamFinance).

• A limited number of assets available for borrowing/lending: Partially due to the oracle and cross-collateral problem discussed above, DeFi protocols are reluctant to onboard new or small-to-mid-cap assets as borrowing/collateral options.

The reputation-based uncollateralized platforms also have limitations:

• No collateral: With few exceptions, the platforms are offering institutional borrowing facilities without requiring any collateral being pledged, resulting in 100% downside for the depositors.

• Limited inventory available: Most reputation-based platforms are only offering loans in stablecoins. At the same time, the highest rates achievable for market-neutral strategies are typically on altcoins (due to limited supply and structural inefficiencies).

• Risk consolidation and discretionary decisions: As a rule of thumb, the platforms are bundling several borrowers into a single pool. Regardless of the balance sheet strength or strategies deployed, the participants are offered the same terms. Furthermore, the decision of who is allowed to participate in the protocol/pools is outside of lenders’ discretion.

Last but not least, the architecture of the dominant primitives is timeless, meaning depositors and borrowers can provide, pull and repay the liquidity whenever they want. As a result, the protocols are severely underutilized at most of the time, making them even more capital inefficient.

And here comes LombardFi:

We are a permissionless public good, allowing borrowers of any kind to request a loan by opening an isolated pool. The terms are fixed, but parameters are flexible:

• Cautious about capital efficiency? Ask for an undercollateralized loan, backed by inventory that is hard to deploy.

• Sensitive on rates? Offer overcollateralization with blue chip assets.

• Having clarity over the duration of the opportunity presented? Set the maturity matching the strategy time horizon and lock the rates today.

Lenders can assess the opportunities available on LombardFi and select the one suiting their risk appetite. LombardFi is also integrated with real-time credit scoring agent Credora and real-time auditor Armanino to help lenders with their decisions.