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- Allows any protocol to tap into its treasury and turn it into a lending & borrowing platform, on their own terms. A lender can lend assets out of their treasury or wallet, which would allow them to earn interest on their otherwise idle funds
- Borrowing power is unlocked for the protocol’s native token.
- Can act as a buyback mechanism. During a default period, the protocol simply get’s their own tokens back at a predetermined price which reduces circulating supply or can be given to token holders
- Can be used as a funding/raising tool in the future (roadmap item)
Example of lending: A protocol has $10,000,000 in USDC. The protocol can then lend out those funds at an interest rate of 1% due at the end of the month. The lender knows exactly how much interest they will make and the exact date to expect the income.
- Deposit collateral instead of selling your token for funds
- Borrow without worry of liquidations
- Do anything you want with your loan including farming at a higher APR than your loan
- Use it as a hedge against your deposited collateral. If you loan becomes greater in value than your collateral by the repayment due date, keep you loan and default on your collateral.
- Borrowing power is unlocked for the native token holder
Example: A lender is accepting wETH as collateral with a lent token of USDC. You deposit your 1 wETH to receive $1,000 USDC at a fixed interest rate of 1% due at the end of the month. You can borrow the $1,000 USDC and farm at a higher interest rate of 10%.