The protocol will focus on providing safety and value capture for its users, while also offering a wide range of features and designs that according to the company, “will enable it to be the first-of-its-kind lending protocol in the crypto ecosystem.”
Crypto-Collateralized Loan Platforms Have Room for Improvement
Crypto-collateralized loans grew in popularity with the advent of Decentralized Finance, allowing for the creation of new trading and investment strategies while also increasing the benefits and services offered by the crypto ecosystem.
However, there were, and still are, several challenges that need to be addressed before they become more accessible to the general public.
At this time, different collateralization levels are necessarily introduced when lending cryptocurrencies, levels that can make the upkeep an extremely complicated matter in a market characterized for its high volatility.
This high volatility inherent to the crypto market can easily result in cascading liquidations when investors panic, which has only become more problematic as networks like Ethereum suffer from performance issues due to their saturation, preventing users from responding on time.
It is also not uncommon for crypto lending protocols to benefit themselves from liquidations while also disincentivizing long-term loans due to uncertainty.
This has been especially true for the Chainlink community as its users lose heavily upon liquidations while lending protocol’s live AAVE benefit from it.
Other issues displayed by these protocols come in the form of user experience and usability, which can be easily fixed with some key design changes.
LINKLEND’s Approach to Crypto-Collateralized Loans
YFLINK’s new product is aiming to be “the first truly crypto-collateralized lending and borrowing platform”. To achieve this, LINkLEND will peg the price of collateralized crypto to the token itself instead of the USD value, effectively removing the potential issues caused by mass liquidations.
According to the announcement LINKLEND users will be able to mint synthetic assets (synTokens) equivalent to a percentage of the base token, which in turn will provide them with a percentage of the contributed capital depending on the existing rules created by TFL governance and the price volatility of the underlying asset.
Unlike other protocols, LINKLEND will not make use of variable collateralization levels based on factors like the USD price or liquidations, but on the amount of minted SynTokens. Users will open a position at the time of minting SynTokens, which can then be redeemed by repaying the SynTokens originally minted.
The result of this approach is that users will not need to consider the risk of liquidations or upkeeping their collateral while they are in an open position, facilitating the use of the platform and providing extra fairness.
This is especially important at a time when Ethereum’s saturation can result in losses, as they are not required to rush to liquidate based on fluctuations based on a USD peg.
YF Link: LINKLEND’s Battery
The LINKLEND protocol will be powered by the YF Link Token, which will allow stackers participating in the YFL governance pool, treasury, or the LINKPAD fund, to generate gains by receiving a percentage of the fees paid at the time of minting and redeeming of synTokens.
It is expected for this to result in the continued growth of both the LINKLEND and YFLink ecosystems by promoting the use of the services and staking of the tokens, all without the need of relying on user liquidation.
Another way for users to increase their gains will be by LPing in the synToken pools, generating trading fees from those who are trading between the synthetic assets and their underlying assets.
LINKLEND’s unique approach and features are the next steps in the evolution of the YF Link ecosystem, allowing existing users to generate more gains and creating an alternative for DeFi enthusiasts looking for a better system that does not rely on their losses.
While the technical aspects and decision-making process behind the design have not yet been published, it will be interesting to see if LINKLEND will be able to disrupt the DeFi market by creating an easier and fairer crypto lending platform.