Greetings, everyone.
My name is Gianluigi, and I recently graduated from the Polkadot Blockchain Academy in Hong Kong. My background expertise is in Fintech and banking, and I’m here to propose a decentralised Hub Lending Parachain for the Polkadot Ecosystem.
The Problem
The Polkadot ecosystem holds multiple assets distributed across multiple parachains. Due to a lack of infrastructure, it is not yet possible to lend and borrow arbitrary assets in a decentralised manner: currently, this can only be done in the OTC market or through trust-based systems in CEX environments.
This restriction prevents the possibility of earning a return on the lending of assets, the execution of leveraged investments and the participation in auctions of liquidated collaterals.
Some parachains (Starlay and Interlay) have implemented a complementary lending market. Still, they permit operations on a minimal set of tokens and do not allow users to lend or borrow an arbitrary token. Bifrost is an interesting case as it offers leverage staking through borrowing from a loan. However, the tokens are tied to the contract and cannot be withdrawn from the environment.
There’s a huge market need for a hub lending service that holds the reserves of all dapp/parachain assets. To achieve widespread adoption of Polkadot, it is critical to provide a DeFi lending solution that allows users to lend, borrow and earn interest on any cross-chain assets.
For this reason, I would like to introduce a new decentralised hub parachain: Kylix Finance.
The Solution
Kylix Finance is a decentralised cross-chain lending parachain, powered by Substrate and XCM. It connects borrowers and lenders from different parachains, allowing them to deposit, for a fee, and borrow, for interest, cross-chain assets backed by collateral, creating Collateralized Debt Positions (CDPs) on the Polkadot ecosystem.
Why KYLIX Finance?
- Vertical on Polkadot Ecosystem: The platform is built on top of Substrate to manage CDPs, allowing users to create compounding strategies on the Polkadot ecosystem.
- Cross-Chain Capabilities: By leveraging XCM, KYLIX Finance permits the movement of liquidity assets from multiple chains to Kylix, enabling the use of the lending protocol for assets on different blockchain networks.
- Yield opportunities: Users can lend assets for a fee, and with collateral-backed loans, they can earn and bid on liquidated collateral.
- DAO Community-Driven: We have designed the KYLIX Finance platform to be fully managed by DAO proposals, including loan pool parameters, and users can seamlessly create loan pools.
Kylix Finance allows users to move their assets from different parachains and create new lending reserve pools. This allows lenders to participate, provide liquidity, earn interest as a stable passive income, and allow borrowers to leverage their over-collateralised holdings through compound strategies.
Lend & Borrow User Flow
- Kylix requests the users to provide collateral in order to get a loan
- A user can get a loan immediately after providing collateral. The borrowed amount is typically less than the total value of the collateral to maintain solvency.
- The interest on the borrowed amount accrues over time.
- When the collateral falls below a certain value, the borrower needs to top it up to avoid liquidation.
- When the borrower returns the loan plus a fee, the collateral is unlocked.
Undercollateralised CDP Flow
- If the value of the collateral falls below a certain threshold due to price volatility, the CDP becomes under-collateralised.
- When a CDP becomes under-collateralised, the liquidated collateral is auctioned off to a queue of bidders.
- Users can participate in these auctions as bidders to purchase the liquidated collateral at below-market prices.
- Bidders can place their bids on the liquidated collaterals. The winning bids are used to settle the debt of the under-collateralised loan. The bidders receive the collateral at the selected discount.
- A fee on the purchased collateral is taken and transferred to the stakers of Kylix native token.
The Features
- Pool Configuration: Kylix allows users to set up lending reserve pools for arbitrary assets by specifying initial parameters such as interest rate models, collateral factors, and liquidation thresholds. Subsequently, these parameters can only be changed via DAO Proposals.
- Tokenisation of Lending Positions: Users’ lending positions are tokenised, enabling the transfer of loan positions and the transfer of ownership.
- Dynamic Interest Rates: Borrowing and lending interest rates, accrued over time, are set according to the supply and demand within each lending market, with an underlying algorithmic mechanism to adjust these rates based on market usage dynamically.
- Loan Repayment and Liquidation: Users can repay loans or liquidate under-collateralised loans. At the same time, they are incentivised to bid on liquidated collaterals to obtain the assets at a discounted rate.
- Incentive Distribution: The protocol includes mechanisms for distributing supply and borrow incentives to users, thereby increasing and enhancing liquidity and borrowing activity in the market. The allocation of the incentives is determined by DAO proposals.
- Collateral Management: Users can deposit assets as collateral to borrow, with the ability to dynamically lock and unlock tokens as collateral.
- DAO Proposals: Users can add and activate new markets by providing initial liquidity, and through DAO Proposals, they can manage pools, such as adjusting pool parameters, deprecating a pool, or allocating incentives.
Further Resources
Please check the Kylix deck for more information about the project and the team.
Feedback
We are planning to submit our proposal to Decentralised Futures and look forward to your insight and support. Please feel free to send us your feedback and opinion to help us improve and become a better part of the Polkadot dApps and ecosystem.
