Lending is a fundamental cornerstone of DeFi. Crypto users lock assets such as ETH into decentralized lending protocols and borrow stablecoins, which can then be used to purchase more ETH. This can prove an effective leveraged strategy when the market is going up. However, not all lending protocols are created equal: some adopt unique architecture designed to mitigate the risks associated with lending.
Lending in Action
Maintaining a healthy collateral-to-borrowing ratio makes it possible to enjoy DeFi lending to its full extent. Millions of DeFi users use lending protocols, even engaging in “looping” by redepositing borrowed funds without encountering problems. Nevertheless, the practice calls for constant monitoring to ensure that positions don’t become under-collateralized.
The alternative lies in solutions that facilitate lending without putting traders at risk of seeing their entire position liquidated should something go wrong. But how? After all, liquidation is a feature, not a bug. Without it, lending protocols could become under-collateralized, and risky behavior would not be penalized.
It’s a complex challenge, but one that cross-chain lending protocol Nolus believes it’s mastered. Its protocol enables DeFi users to take advantage of leveraged lending without the danger of having their entire position liquidated. Instead, it utilizes partial liquidations, meaning that if a position should become under-collateralized, only a portion of the deposited assets will be forfeited.
Nolus’ flagship product is DeFi Lease. It enables borrowers to obtain up to 150% financing on their capital while accessing underlying leveraged assets through a range of whitelisted strategies. This provides a novel DeFi lending solution with a number of unique benefits.
With Nolus, borrowers lock up a down payment in the form of fiat, stablecoin, or a digital asset. In return, they receive 150% as a loan in stablecoins, which can be used to purchase the digital assets they desire. This solution offers 3x the borrowing ratio of other cryptо lenders. This is achieved because the down payment, together with the loan, is locked into a DeFi Lease position to serve as collateral. Nolus claims this method reduces the margin call risk by 40% compared to other onchain lenders.
One of Nolus’s benefits is that it enables greater capital efficiency since there’s no need to over-collateralize loans to guard against liquidation. As a result, Nolus users can enjoy significantly lower liquidation rates than comparable lending protocols. Its partial liquidation engine protects against volatility and full collateral loss while maintaining a healthy loan-to-value ratio.
Since going live in June 2023, Nolus has processed over $50m in transactions and boasts a current TVL of $5m from around 10,000 users.
Destressing DeFi
DeFi isn’t meant to be stressful. It’s supposed to provide financial freedom by empowering individuals to take control of their finances. That means the freedom to interact with any protocol they wish, to pick the products and services they wish, and, of course, to select the level of risk with which they are comfortable.
Those who want to YOLO it and risk by leveraging to the max and extending their borrowing limits to full capacity are free to do so. Similarly, those who wish to pursue more conservative strategies without risking it all on every trade have that ability.
Nolus can’t prevent degens from being degens: some DeFi users will always chase the greatest prizes, come what may, be it ultra-high leverage or eye-watering APYs. But for those less intent on going hell for leather, Nolus can mitigate the downside to leveraged lending without capping the upside regarding attractive yield. It’s the closest DeFi users can get to having and eating their cake.