Now, through their lending protocols, investors and users of Bonded Finance are starting to make the most of an estimated $50bn in undiscovered liquidity in the altcoin market by leveraging these assets to earn rewards and maximize their investments.
Accelerated Crypto Loans
An Accelerated Crypto Loan (ACL) is a financial instrument that allows investors to contribute to a liquidity pool i.e. a pool of assets locked in a smart contract. Using the liquidity pool, users either deposit assets to add liquidity and earn rewards or borrow funds by depositing their assets as collateral.
The pool allows borrowers and lenders to interact through a solitary protocol, meaning ACLs differ from more traditional CeFi (Centralized Finance) products. As the loan issuer is represented by the investors’ pooled assets locked in the smart contract, it removes the need for third parties (e.g. banks) to oversee the loan, allowing for the instant borrowing and collateralization of assets in the pool.
Interest rates and asset prices are determined using an oracle, which aggregates data from external providers and provides a consistent, up-to-date price feed to Bonded. This data is then used to calculate how much can be borrowed, the collateral amount required to borrow and how much can be earned via the liquidity pool.
How Can I Leverage My Assets Using an ACL?
Users of Bonded Finance have many ways to generate returns and maximize the utility of assets that have been traditionally overlooked in crypto. Bonded is aiming to unlock the dormant value of the altcoin market, so owners of assets with less liquidity and greater volatility may find the ACL protocol the ideal solution to earn against these assets.
Simply depositing assets into the liquidity pool and becoming a lender, generates interest and provides a stable form of passive income. The ACL protocol aggregates the supply from each user and it becomes part of a liquidity pool, creating a fungible asset that can be borrowed against. Depositing assets is handled through a browser extension or wallet such as Metamask.
The interest rate formula is based on a linear demand curve which allows for a self-regulating platform that incentives liquidity via increased rewards. Supplying assets to the ACL Protocol earns interest in the denominated asset.
As lending requires minimal exposure to start, it provides a real alternative to asset owners that wish to maximize their returns on their dormant assets, which may be stagnating on exchanges or lower reward platforms.
Borrowing on Bonded Finance provides a great opportunity to collateralize assets and free up capital that can be used elsewhere. Users can, for example, borrow Bonded’s native stable token, bTokens.
bTokens are minted when a borrower issues collateral that can only be redeemed for the initial collateral. Borrowing from the ACL only requires a user to specify the desired asset as there are no terms to negotiate such as funding periods. Assets deposited by borrowers as collateral (locked bTokens) are further determined by the quality of the provided asset, creating a unique loan-to-value ratio (LVR), calculated by the supply and demand of each collateralized asset.
The higher the LVR number for a given altcoin, the more bTokens or stablecoins that can be borrowed against it. An asset such as ETH may have a higher LVR, meaning the user can borrow more bTokens or stablecoins against their deposit.
By depositing and borrowing against a liquid altcoin, users can further contribute to the lending liquidity pool or make further investments with borrowed capital.
For example, a user has $10000 worth an altcoin they wish to borrow against. The user supplies this as collateral and has a 1-click option to borrow against these assets with the LVR determined by Bonded lenders.
The altcoin is supplied as collateral and bTokens are then minted. Using an example rate of 50%, the user receives $5000 in their preferred asset which can be used to contribute to a Bonded lending pool or to purchase other tokens.
For supporters of a given project, the temptation to sell is considerably lessened when their long-term holdings can be leveraged in such a fashion. There are scores of well-capitalized projects in crypto reaching milestones and progressing but have been victimized by capricious communities feeling stuck as other tokens around them perform well. It has created a sort of musical chairs phenomena, something Bonded Finance aims to contain by providing support to altcoins though its smart instruments.
Whether borrowing or lending using the Bonded Finance platform, the ACL provides a market-leading alternative to passive holding. Users of Bonded Finance can begin to realize value and earning opportunities to maximize returns on their holdings.