DeFiner 2.0 Whitepaper
Jason Wu / June,2021
( [email protected] ) | LinkedIn | Twitter
DeFiner.Org | DeFiner LinkedIn | DeFiner Twitter
Abstract
This whitepaper introduces DeFiner 2.0, a protocol that allows the user to not only create the most configurable and decentralized lending pool, but it is completely permissionless and protects your privacy 100%. DeFiner 2.0 will include a Smart Contract Factory which produces a lending market on demand; Configuration Features: To customize risk control & interest model, and a bridge to Money Market to help aggregate liquidity; Furthermore, with a Privacy Function to conduct a private balance transfer.
1.2 The Solution — DeFiner 2.0: A Permissionless and Configurable Lending Protocol with Privacy 100% Protected
1.3 How does DeFiner 2.0 Works
3.2 Where is the revenue from and how will we distribute it?
The DeFi industry is still on the way to true decentralization. Current DeFi lending protocols serve as gatekeepers, reserving the right to decide which tokens will become part of their pools while leaving many tokens and digital assets unavailable to lend.
As a response, some protocols introduced a DAO governance model to decide which coins will be listed in their pools. However, even with a DAO system, the design is still considered a centralized framework because its power is concentrated within a small handful of people instead of the entire community.
Currently, there are more than 10,000 tokens listed on CoinMarketCap, but there are less than 50 crypto assets supported by current lending protocols today. These platforms are the only protocols available to top market cap tokens because their liquidation mechanisms rely on the oracle price feed model.
Current lending protocols risk management mechanisms are only able to support crypto assets with similar risk levels, preventing them from providing a lending market for low-market cap tokens. This is why most assets do not have their own lending markets, because it makes scalability impossible.
Once this lending problem is solved there are many possibilities, giving tremendous opportunities to low liquidity assets like NFTs, real estate, credit tokens, and more.
Figure. 1. The problem for current DeFi Lending Protocols
The Solution — DeFiner 2.0: A Permissionless and Configurable Lending Protocol with Privacy 100% Protected
DeFiner’s next-generation product, DeFiner2.0, successfully solves this lending problem by creating a 100% permissionless lending protocol. In DeFiner 2.0 anyone can create their own lending pool by using any token or digital assets they choose.
Every pool will give someone complete control over it, with highly-customized configurations like risk control, interest rate, and choice of oracle. These customized configurations will help avoid isolation by keeping a reasonable degree of liquidity for each pool in order to improve capital utilization. Each lending pool will be connected to our money market main savings pool — which supports high-liquidity assets like stablecoins, BTC, ETH, and more.
In DeFiner 2.0, we plan to introduce even more applications into our ecosystem over time, including Initial Loan Offerings (ILOs), non-collateralized loans, off-chain asset-backed loans, fixed-rate loans, term loans, and a variety of different offerings based on community feedback.
DeFiner 2.0 represents a near-perfect solution for the current problems facing DeFi lending protocols today and is designed to bring a true form of decentralization to the global DeFi ecosystem.
Figure. 2. A near-perfect solution for the current problems
As we mentioned earlier, risk management mechanisms used by current DeFi lending protocols can only support coins with similar risk levels. The current DeFi lending protocol design makes it nearly impossible for a lending pool to risk volatile assets against stronger ones, simply because of the liquidation mechanism.
But DeFiner has discovered a solution to this lending dilemma — configuration. We created a new mechanism where anyone can create a separate lending pool with fully customizable parameters based on different token liquidity. DeFiner 2.0 will have a built-in, configurable Smart Contract Factory that offers the user total control over their lending pool.
On the back end, our Smart Contract Factory will generate a smart contract based on the different configurations users can input when creating their own lending pool.
The configuration mechanism can manage the risks better because we are able to separate different risk levels by creating and then separating another pool. Essentially, our Child Debt Market works to isolate the risks from our main savings pool.
And where there are risks, there are rewards. Our method will efficiently reward risk-takers with a higher APR for taking a chance. And to ensure better risk management and returns, DeFiner will allow users to configure three categories: 1. Risk Control Model; 2. Interest Model, and 3. Oracle Model.
Figure. 3. The configuration mechanism
Below are some examples of what users can configure under each category.
Parameters in this category are designed to manage a borrower’s behavior and to prevent loan default. Different markets have different volatility levels, so they should have different LTV (Loan-To-Value), liquidation threshold, and discounted ratios. Below are some parameters that users can configure in DeFiner 2.0.
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Borrow LTV for collateral
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Borrow LTV for lending currency such as USDT, USDC, DAI, and ETH
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Pre-Configured Parameter:
- Liquidation Threshold: 85%
- Liquidation Discount Ratio: 95%
Configurations in the Interest Model are designed to reward the risk-takers and attract lenders to the pool. Users can adjust interest rates based on different tokens’ liquidity and their needs. Parameters like staking APR, lending currency debt APR and even the mining speed are all available for customization to control the interest rate. The higher the risk, the higher the return.
- Staking APR range
- Debt APR range for lending currency
- Deposit Mining Speeds for Each Token
- Borrow Mining Speeds for Each Token
Oracle models are risk control configurations. Not all token prices are available on mainstream Oracles. Based on the different liquidity of each token, DeFiner offers three different Oracle models for users to choose to mitigate risk.
- Chainlink: We use Chainlink as our Oracle for high liquidity tokens.
- Uniswap: We use Uniswap for low and middle-level liquidity tokens as our price source.
- DeFiner Oracle: For tokens that are not listed on the market yet, we are using the DeFiner native Oracle as our price source. The price will be reviewed and assessed by DeFiner DAO periodically.
To solve the isolated debt market liquidity problem, DeFiner 2.0 will implement three approaches:
DeFiner 1.0 has an aggregator function that connects our savings pool to money markets like Compound. All Child Debt Markets (generated in the Smart Contract Factory) are connected to DeFiner 1.0 (our main savings pool), and other protocols like Compound and AAVE. This will be the cornerstone of DeFiner 2.0.
Connecting all of these child debt markets to money market protocols solves the lack of liquidation issue efficiently. The DeFiner 1.0 main savings pool/money market, combined with other protocols will effectively aggregate all unused capital inside the Child Debt Market. The mechanism is used to improve excessive capital.
We use a pre-configured parameter, the Reserve Ratio, to determine how much funds to allocate in the money market. The minimum Reserve Ratio is 10%, and the maximum Reserve Ratio is 20%.
Figure. 4. Reserver ratio example
The second mechanism DeFiner uses to ensure liquidity is through a secondary debt market. Users will have the option to tokenize their debt position and trade it on a secondary market. Users will receive a dToken, a tokenized representation of their debt position. If users want an early exit and there is a lack of lending currency available, the user can swap their dToken in the secondary debt market at a market-driven price.
Liquidation is a good way of managing a borrower’s behavior and ensuring they repay the loan and interest. Currently, collateral on DeFiner is open for forced liquidation when LTV>= 85% (Read the liquidation mechanism details here). DeFiner 2.0 introduces a Review Terms mechanism if Loan-To-Value falls below 85%. Liquidation will happen if either one of the following criteria is met. The Review Terms mechanism provides more flexibility.
- Critirion 1: Use the Borrow Reserve Factor (BRF) to control the lending currency reserve to ensure there is always liquidity for lenders to withdraw. BRF is calculated by lending currency Total Value Locked (TVL) divided by the total value of debt outstanding. BRF should always be between 0 to 10%. If BRF is equal to 0, the liquidation process will be triggered to bring the BRF back to 10%.
- Critirion 2: Use the time frame mechanism to trigger liquidation. Based on the terms, the liquidation process will be triggered periodically. During the configuration process, DeFiner 2.0 provides users with the option of 1-month, 3-month, 6-month, or 12-month terms. At the end of each term, the need for funds in the pool increases. This triggers the BRF requirement to change from 0-10% to 10-30%. During this period, if the BRF falls below 10%, the liquidation process will be triggered to bring the BRF back to 30%. The process is designed to give users a window to withdraw funds. The window will last for 7 days. After 7 days is up, the BRF requirement will change back to its normal level which is at 0-10%.
Privacy protection is another critical matter in the current DeFi lending ecosystem. All transactions in DeFi are currently 100% public. Even though the user identity of each public address is not easily available, it is not “Mission Impossible” to identify a user and their related addresses through data analysis and mining. With the right know-how anyone can mine data with the identity or location of the wallet address. DeFiner believes that true financial freedom cannot be achieved without users having the option to make traceless transactions.
That’s why DeFiner 2.0 is poised to introduce a new privacy function into our smart contract. This new update will enable users to transfer their balance/s within our contract without disclosing any destination address information. The DeFiner smart contract will act as a black box and break up the on-chain link between deposit source and withdrawal destination addresses, giving users 100% privacy of their account.
Figure. 5. A new privacy function into our smart contract
There are five major functions in DeFiner 2.0:
- Borrowing
- Lending
- Create Markets
- Staking
- Private Balance Transfers
We will use some real-world examples to walk you through all five of our functions. Let’s say Company A is a blockchain startup, who has just closed a lead investment and has a SAFT (Simple Agreement for Future Token), a token price, and a tokenomics plan.
Project A also sets a date for initial public listing. Instead of raising money from investors, they have an option to use the DeFiner Debt Market to help raise funds by borrowing from the community. This saves time and helps them build a robust community around their project from the beginning. With more community exposure there will be better growth for a project. We call this process the Initial Loan Offering (ILO). The ILO is different from an IDO (Initial DEX Offering) in that instead of selling tokens in a pre-sale where only high-value investors get exclusive access to new projects at a discounted rate, the DeFiner community gets first access to new projects launching on our protocol.
Project A will input the loan collateral and the configurations such as Debt APR Range, Staking APR Range, Review Terms, and Collateral Factors. After Project A inputs all the necessary configurations, they must ensure enough collateral tokens in their wallet.
Project A will then approve the spending limit of the token and the lending currency. After Project A supplies collateral, DeFiner’s Contract Factory will generate a smart contract based on the configurations Project A inputted, and then a debt market will be successfully created for the project.
Now that Project A has successfully created the debt market its next mission is to attract lenders. Project A will have to run promotions, provide a detailed fund usage plan, set up an attractive interest and token mining rate, and a default plan to efficiently attract lenders. DeFiner will also help to promote these projects through the DeFiner community.
Once Project A successfully attracts enough lenders, Project A can start borrowing funds anytime they want based on its availability. A borrowing power (factorcollateral value) will be defined. Borrowing power is calculated by factorcollateral value. The borrowed amount should always be less than or equal to the borrowing power which is equal to collateral.
Figure. 6. Project, Debt Market and Commumity
Let’s look at the lender's side. Consumer B is the typical consumer, and a member of Company A’s community that wants to buy their token before it's listed. If Customer B finds the terms and by Project A attractive, they can deposit their funds to Project A’s debt market. Once Customer B deposits the funds, they will receive dTokens which will represent their deposit balance position. Customer B’s reward is in two portions: the staking portion which is provided by Project A; and the interest rate portion.
Startup A can run a staking program in their lending market to encourage the community to deposit their token to the lending pool and reward them with interest. Communities have a better chance to turn into long-term holders because they can make passive income from their tokens instead of sitting idly in their wallet. Token holders need to simply deposit the underlying collateral into the lending market and earn passive income. Also, if they need cash in the short term, they can borrow against their token.
Early-stage startup tokens are just one category of debt markets. Because of our unique and permissionless design of the protocol, DeFiner enables limitless use cases for opening and running a lending market for any tokens.
We have identified the following seven personas who would use DeFiner 2.0:
- Early-stage startup token before token listing and trading
- Mid Stage startup token after token listing and trading, but with limited liquidity
- Late-stage startup token, public trading, and with good liquidity
- NFT asset-backed debt market
- Off-chain asset-backed debt market
- Non-collateral loan market
- LP(Liquidity Provider) token or any other tokenized position market
If we look at the history of DeFi, the first generation of the lending protocol is peer-to-peer lending, while the second generation is the savings pools model protocol. DeFiner is poised to lead the DeFi space with our third generation DeFi lending protocol, a true permissionless and configurable protocol with 100% privacy protection. Permissionless will help us achieve true decentralization in the ecosystem, which means zero gatekeepers holding users back. Any digital assets or tokens can start their own lending pool.
Your assets, your ownership. Configurations will help to manage the risk and rewards better for the tokens. Finally, the privacy function will bring an extra layer of protection to the end-users.
Now, what do we mean when we say we protect your privacy 100%? Our revolutionary zero-knowledge proof wallet transfer system, allows you to move funds from an infinite number of wallet addresses without ever revealing your private information or wallet address.
DeFiner 2.0 makes DeFi Lending what it should be.
We are excited to introduce the DeFiner HODLer Market, the first stage of DeFiner 2.0. DeFiner HODLer Market is a permission-less protocol enabling users to HODL, borrow, and earn any tokens.
One of the major issues current DeFi protocols are facing is the “death spiral” caused by mercenary liquidity. Liquidity miners hop from project to project looking for higher yields. This leaves a huge dilemma for current DeFi protocols.
When a protocol launches its liquidity mining program, the high APR attracts lots of liquidity. However, these liquidity miners only come to farm, withdraw, and sell. This action imposes a high selling price on the protocol's token which further causes the price to drop. The drastic token price fall intimidates those who truly want to commit and grow with the projects. When the protocol reduces or stops the token rewards, liquidity miners will immediately move to other protocols offering higher rewards leaving a dead community behind. Thus causes the death spiral.
This unstable relationship often leads to a lose-lose situation for the protocols and the liquidity miners. Protocols will not nurture loyal and committed communities.
Figure. 7. The Problems in DeFi Liquidity Mining
Bitcoin is a prime example of a token that does not have a death spiral. Evidence of this is that the price of Bitcoin generally trends upward. An important aspect of Bitcoin's positive price action is its reward system: Bitcoin only rewards the committed community members – the miners.
Miners invest huge capital in mining machines and mining farms, and Bitcoin mining itself takes time. All the time and money invested generates a sunk cost which makes it hard to leave the protocol easily. Even if they want to, miners have to consider their opportunity cost. Therefore, they tend to commit to the network, no matter what happens in the next couple of years.
Bitcoin miners represent a group of users who did their due diligence before diving into the protocol. Unlike mercenary liquidity miners, they came for a commitment. They will not leave to another protocol easily.
So, what can other protocols do to find loyal users and avoid the death spiral?
The DeFiner HODLer Market is DeFi’s answer to mercenary liquidity. The goal of the DeFiner HODLer Market is simple: HODL, BORROW, and EARN. It is a protocol that helps projects filter out the mercenary speculators so that only those who are committed and want to grow the project together are rewarded.
Figure. 8. The Solution
One of the main features of the DeFiner HODLer Market is customization. Projects will have the ability to create a lending market of their own, on-demand. The HODLer Market will have a built-in, configurable Smart Contract Factory that will generate a lending smart contract based on the configurations users input when creating their own lending pool.
Projects have the ability to customize the maturity date for their HODLer Market (such as one month, six months, twelve months, etc.). This mechanism will be beneficial for building a loyal community because it helps filter out the mercenary liquidity miners. Only those who do their own research and want to commit to the project will be staking on the protocol. Instead of farming, withdrawing, and selling, communities will farm, hodl, and promote for the community.
One advantage of the HODLer Market, as compared to purely locking up the token, is the ability users have to borrow. Users can use their locked-up tokens as collateral for a loan against it. For example, when there is a market downturn and users need the funds, they always have the option to borrow the funds on the DeFiner platform.
Once the community feels they are part of the project, they will farm, hodl, and promote the project; thus, avoiding the death spiral.
After implementing the HODLer Market, projects will enjoy a committed group of users and promoters. Since the community has been through ups and downs during the lock period, they will be more loyal to the project. At this stage, both the protocol and liquidity miners will achieve a win-win situation. The project and its community will grow together. No death spirals.
DeFiner is a strong believer in decentralization and DAOs. That's why we will be launching a special program to distribute the HODLer Market profit back to our community. We call it the Treasure Hunting Program.
Upon launching each HODLer Market, there will be a HODLer NFT associated with it. Both pool creators and pool promoters will be rewarded with "treasures" - NFTs that can be a “Gem,” “Sapphire,” or a “Diamond Hand.” These represent the status of the HODLer Club. In addition, treasure owners will be entitled to a certain percentage of the interest earned through the corresponding HODLer Market’s lifespan.
Figure. 9. Treasure Hunting Porgram Breakdown
The DeFiner HODLer Market is just the first stage of DeFiner 2.0. Our full mission is to create a truly permissionless, configurable DeFi lending protocol with 100% privacy protection.
For DeFiner 2.0, we plan to introduce even more applications into our ecosystem over time, including NFTs, Initial Loan Offerings (ILOs), non-collateralized loans, off-chain asset-backed loans, fixed-rate loans, term loans, and additional offerings based on community feedback.
Figure. 10. DeFiner 2.0 Use Cases
Today’s mainstream DeFi lending protocols support less than 50 crypto assets, yet there are more than 15,000 tokens in the market. DeFiner 2.0 provides a near-perfect solution to this problem and is designed to bring a true form of decentralization to the global DeFi ecosystem. We want to provide the infrastructure and enable anybody to create a lending pool of their own.
- Learn more about DeFiner 2.0’s vision: https://blog.definer.org/definer-2.0-intro
- See DeFiner 2.0 roadmap: https://blog.definer.org/definer-2.0-milestones
With the successful launch of the DeFiner HODLer market, phase I of DeFiner 2.0, it is a great opportunity to renovate our FIN tokenomics. The enhanced FINconomy will have more features to further benefit our FIN token holders and grow a loyal and committed community.
Figure. 11.
The current unissued POP Mining and LP Mining pool FIN token will be reserved for future strategic investment purposes which means no new FIN tokens will be issued to the reward pool. This will efficiently prevent the death spiral problem most DeFi projects are facing nowadays. Moreover, we want to increase the usage of FIN tokens and create a deflation environment for FIN token holders. Let’s take a look at the future of DeFiner 2.0 FINconomy.
Figure. 12.
$FIN serves as the DeFiner protocol utility and governance token. $FIN holders can submit proposals for configurations across all DeFiner protocols, earn recurring stable coin income by staking, and participate in governance to decide the direction of the protocol. Users can also create a FIN LP pair with $FIN and participate in the liquidity mining to earn more $FIN.
$FIN serves as a utility token within the DeFiner protocol. Users can use $FIN to propose configuration changes to the lending market. DeFiner requires a certain threshold of FIN before users can submit a configuration change proposal.
For example, Project A has created a HODLer Market for its native token, ABC, at a 20% initial loan to collateral ratio. As time progresses, the trading volume increases significantly, and more exchanges list token ABC. Project A will need to improve the borrowing ability of token ABC, which can be done by submitting a proposal to change the collateral ratio from 20% to 40%. To submit the proposal, the DeFiner protocol can have a minimum requirement of a $10,000 FIN token deposited in one of the FIN HODLer Markets with a one-year lock-up period.
Users who stake $FIN are entitled to our revenue redistribution. The longer $FIN is staked in the pool with a fixed term, the more revenue holders are entitled. Such revenue includes HODLer market creation fees, interest reserves, and liquidity mining reserves from each HODLer market.
For example, the DeFiner protocol gains revenue from market creation, interest reserves, and liquidity mining reserves. A portion of reserves is used to reward FIN HODlers. Let’s assume "1 Year FIN HODLer Market" with $500,000 worth of FIN token is deposited and $100,000 stables are allocated to reward the token holders. In this scenario, the FIN holder who deposits this pool will earn roughly 20% annual return recurring revenue in stables. In this way, FIN holders are efficiently encouraged to hold and earn long-term gains.
Users can participate in the DeFiner protocol governance by owning $FIN. The decision includes protocol proposals, roadmap priorities, and profit distribution mechanisms. Users gain voting power by staking $FIN. The longer the $FIN holder's stakes in the pool, the more voting power they are entitled to. The veFIN token is a voting governance token for DeFiner. veFIN is issued to FIN holders who deposited to a HODLer market. Based on the amount of FIN token and the deposit period, users will receive different amounts of veFIN.
$FIN can also be used to generate the $FIN - LP token. FIN-LP pool is created on decentralized automatic market-making DEXes to ensure sufficient liquidity for FIN trading. $FIN token holders will be rewarded by participating in the $FIN farming pool. Liquidity providers will be entitled to the $FIN liquidity mining, which is purchased back by treasury revenue. By participating in FIN-LP, users will also gain transaction fees.
Figure. 13.
DeFiner's mission is to help token issuers grow a loyal and committed community. The protocol will generate revenue in several ways: HODLer market creation, interest reserve, and liquidity mining reserve. The protocol is also set to receive a fixed amount of market creation fees.
Let's say that Project A wants to create a HODLer market for its native token. By initiating the contract, the creator will auto-send a fixed amount of the blockchain native coin to the DeFiner protocol. The initial target is to get $150 worth of native coins for each market created. When Project A starts to run a liquidity mining campaign by rewarding its users with their native token, ABC, the DeFiner protocol will share a percentage of the mining rewards. Since ABC token HODLer can borrow against their locked position and pay interest, the protocol will also share a percentage of the interest paid. The percentage of reserve and the amount of market creation fee will be decided through the DeFiner DAO governance system.
The revenue generated will be distributed into two separate pools: the Treasury Pool and the Reserve Pool. The Treasury pool is used to cover development expenses and protocol maintenance. DeFiner will use the remaining fund to purchase back $FIN from the secondary market which will be further used to provide liquidity mining rewards for those FIN-LP holders. The Reserve pool will be used to engage and grow the community through the HODLer market staking program. It will be providing stable and recurring revenue to our FIN token holders which will encourage long-term holding behavior and build a loyal community. The percentage split between treasury pool and reserve pool and allocations will be decided through the DeFiner DAO governance system.