Our COO Vlad Horiliy together with Sophia Gorban who is Product Manager of the Yupana.Finance have discussed Yupana.Finance lending protocol earning strategies and how it works under the hood.
The first lending protocols were on the Ethereum blockchain. They are called Compound Finance and AAVE.
Lending protocol is an essential part of the DeFi ecosystem and helps projects use liquidity more efficiently.
The main feature of the lending protocol is to provide money without spending crypto funds. It is possible to take a position in the lending protocol by supplying crypto funds and borrowing stablecoins or any other asset.
Yupana Finance is a lending protocol built on Tezos. In the process of working with Yupana we decided to use a Temple wallet that supports Tezos tokens.
Collateral Factor in real life means the asset value you pledge to a bank to get a loan. Collateral is always bigger than a loan and guarantees that a debitor will repay a loan. In crypto, Collateral is a crypto asset you provide to get a loan in some other crypto asset. On Yupana Finance, Collateral means a percentage of supplied tokens available to borrow, so you cannot borrow, for example, more than 70% of a supplied token. The Collateral Factor value may differ for each supplied asset.
The Utilisation rate is the amount of loan taken by the lending protocol user, divided by the total amount of loan available. The Utilisation rate shows how popular the token is.
In the lending protocol, you are limited by the liquidity of the protocol, so it is essential to check liquidity before borrowing.
The Yupana lending protocol is a great tool to improve the performance of your portfolio by providing your assets as a credit to other participants.
One of the most simple examples shows the benefit of using Yupana is when a person with some crypto assets wants to buy a house without spending crypto. The person can use Yupana to supply crypto and borrow, for instance, USDT to sell them on CEX to buy a house.
The case when the supplied crypto asset’s price goes up is good for the person since it will be possible to sell tokens, get a profit and exchange it for USDT and repay the credit.
The case when the supplied crypto asset’s price goes down is not good since the person’s collateral might be liquidated. It can especially happen when a Liquidation threshold is too high.
The Liquidation threshold is the value at which the debt position is considered insufficiently collateralized and is subject to liquidation. For example, if the liquidation threshold for an asset is 75%, the loan will be liquidated when the debt value reaches 75% of the collateral and above. Yet a liquidator does not liquidate the supply fully. Only 50% of the supply can be liquidated, which is half of the borrower position. Any user can become a liquidator.
Liquidation is the important part of Yupana Finance since the protocol needs more supply opportunities to balance liquidity. In short, liquidation helps the protocol to stay healthy.
To incentivise users to be liquidators, Yupana has a Liquidation bonus. A liquidator can repay part of the outstanding amount instead of the borrower and buy his collateral with a discount, receiving compensation equal to the difference between the liquidation threshold for a specific debt position and the actual debt value at the time of liquidation.
Another benefit of using the Yupana lending protocol is to earn and diversify your portfolio. For example, you have $100 in some crypto asset, and you believe that it will rise soon. So, being afraid of selling this asset you can supply this crypto in Yupana and borrow another asset to diversify your portfolio. After some time, the first asset can rise, and you can earn money.
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