USDToch, a groundbreaking on-chain lending ecosystem, is set to transform the landscape of decentralized finance (DeFi) with its cutting-edge platform. USDToch introduces a unique lending solution for DeFi 2.0, aiming to enhance capital utilization and maximize investment returns for participants. By combining the power of over-collateralized lending with the integration of traditional assets in the form of Real-World Assets (RWA), USDToch opens up new possibilities for the future of decentralized lending.
“USDToch provides a lending solution for DeFi 2.0. Building on the existing enhanced capital utilization enabled by over-collateralized lending, it further enhances the investment returns on the staking side. It also plans to introduce traditional assets into the DeFi lending system in the form of RWA soon.”
Lending is one of the oldest economic activities in human society. Ancient loans took the form of pawnshops where loans were granted against collateral deemed valuable. Early forms of credit arose when resource owners lent production materials to laborers with an expectation of repayment in goods. If the borrower failed to repay, their family could be enslaved.
Today, credit is essential to businesses and the entire economy as it allows economic units to raise operational capital without diluting equity. This leverage effect leads to increased investment, capital expenditure, and consumption, and eventually rapid economic growth.
In TradFi, credit is typically divided into secured and unsecured credit. A mortgage is a secured loan since the loan is secured by property. Credit cards are an unsecured loan, or can be thought of as collateralized by the creditworthiness of the borrower. Credit creation results in balance sheet expansion.
The existing lending protocols in the DeFi space predominantly rely on over-collateralization, resembling traditional pawnshop lending models, and do not involve credit creation. While over-collateralized loans provide ample trading and hedging strategies for the financial sector, their use cases remain limited outside of the industry. These protocols only allow asset owners to borrow, leaving little room for the less privileged to increase their leverage. Even for asset owners, there exist more efficient ways to access leverage beyond participating in DeFi lending.
For instance, consider an individual holding $10 million in crypto assets. They may be eligible to borrow up to $20 million from a centralized financial institution (CeFi) that undergoes Know Your Customer (KYC) processes and credit checks. However, recent events, such as the collapse of FTX, have unveiled the struggles faced by the top three CeFi lending platforms globally. Despite the potential advantages, the “core DeFi principle” of permissionless innovation hinders the growth of the DeFi lending market, limiting its ability to compete with centralized counterparts.
USDToch, a leading investment ecosystem in the industry, is poised to redefine the DeFi lending landscape by introducing permissionless access to credit creation. By leveraging blockchain technology and advanced financial models, USDToch enables individuals, regardless of their wealth or background, to access credit and increase their leverage. The platform’s innovative approach eliminates the restrictions imposed by over-collateralization, opening up new opportunities for borrowers.
The logic of DeFi lending
Introducing DeFi over-collateralized lending – the perfect way to increase your capital utilization in the crypto market. With this method, you can leverage your bullish assets like ETH, without having to sell them off. By staking your ETH on a lending protocol, you can receive a substantial amount of USDT for other profitable investments. For instance, staking your ETH with a staking ratio of 0.7 can earn you 1400 USDT, which you can use for further investments. When you are ready, you can redeem your staked assets without triggering liquidation. Additionally, lending protocols support staking stablecoins and lending crypto assets such as ETH at the staking rate, giving you even more options for profitable investments.
One of the key benefits of DeFi over-collateralized lending is that it prevents borrowers from defaulting while providing insurance space for the platform to resist market fluctuations. However, in the current DeFi lending system, investors do not hold the initiative. When you stake ETH on a lending protocol, it typically does not generate substantial profits, despite some protocols offering small incentives. Alternatively, lending protocols may use your pledged assets for other “farming” activities, and the profits are usually not distributed to the pledger. This lack of control over your assets can be frustrating for investors looking to maximize their returns in the crypto market. Leverage Smart players usually prefer to use lending platforms to engage in circular lending with leverage to gain higher profits.
Suppose you currently hold an ETH worth $2000 and stake it to borrow 1400 USDT based on a 0.7 loan-to-value ratio. The investor then uses the 1400 USDT to purchase 0.7 ETH from another DEX and continues to borrow on the same platform.
At this point, the investor will have a total of 1.7 ETH (two ETHs staked on the platform), and the debt owed to the platform is 2380 USDT. When ETH rises from $2000 to $4000, the investor will have a total of $6800 worth of ETH.
Then, the investor can redeem the second staked 0.7 ETH and trade it into USDT (get 2800 USDT), and take out 1400 USDT to redeem the first staked 1 ETH. The investor will then have a total of 1 ETH + 1400 USDT, and the extra USDT is the profit earned through revolving lending.
This means that the investor only uses $2000 of capital to leverage $3400, and when the investor engages in multiple lending transactions, their cumulative staked assets and debt increase simultaneously, as shown below:
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We see that when an investor borrows and repays for the third time, their cumulative staking assets increase from 1 ETH to 2.19 ETH while its debt increases from 1400 USDT to 3,066 USDT accordingly. Following this trend, the investor can continuously increase their leverage through repeated cycles.
Therefore, the main factor determining the profitability of this investor at this point is the price of ETH (since their debt is calculated based on the value of USDT and remains constant). The higher the value of ETH, the higher their profit will be.
Liquidation
Of course, there is a risk of liquidation in borrowing and lending itself. When the health of the borrowing user falls below a certain threshold, it will trigger a liquidation
Health = Collateral Value / Loaned Asset Value
Assuming the platform’s health threshold is 1.2, let’s take a look at the example mentioned above.
When 1 ETH = 2000u, health = 2000/1400 = 1.42
When 1 ETH = 1900u, health = 1900/1400 = 1.357
When 1 ETH = 1680u, health = 1680/1400 = 1.2, triggering liquidation.
That is, the platform will forcibly sell the ETH staked by the investor to pay off their debt to avoid losses when liquidation occurs. Therefore, when the ETH price is 1680 USD, the platform will be liquidated. The investor will only hold 1400 USDT borrowed from the platform, which is equivalent to the price of ETH at 1680 USDT. However, due to liquidation, they only receive 1400 USDT and lose 280 USDT.
When we borrow and lend repeatedly and trigger liquidation, our losses will accumulate. Many investment institutions leverage up wildly in the bull market, but are liquidated in the market downturn and go bankrupt, which has a huge impact on the crypto industry.
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The loan protocol cannot provide investors with a better or more substantial way of earning profits other than leverage. Its limited application scenario makes it difficult to bring incremental benefits to the cryptocurrency industry from external markets.
USDToch: a new lending form for DeFi 2.0
USDToch, a leading investment ecosystem in the industry, is proud to announce its groundbreaking platform that revolutionizes DeFi lending and offers a diverse range of assets and lending products. As an AI strategy investment platform based on Web3 assets, USDToch combines cutting-edge technologies with verified liquidity strategies executed by an AI system to provide investors with stable and low-risk returns while safeguarding their assets.
Unlike traditional DeFi lending platforms, USDToch introduces significant improvements through its advanced product offerings. Lending is a core investment option available to users, allowing them to secure collateralized loans through a non-permissioned approach. By staking and borrowing digital assets, users can access loans in USDT or other digital currencies based on the value of their staked assets. With a range of loan products, including short-term and long-term options, users have the flexibility to choose the lending product that best suits their needs, ensuring quick access to funds while maximizing the safety and utilization of their assets. Notably, when users stake assets with USDToch, they can enjoy substantial staking interest provided by the platform.
USDToch has established a robust and stable business revenue model, leveraging its extensive fund pool generated through lending activities and strategic partnerships with top market makers globally. The platform utilizes these funds to participate in the liquidity market of Web3 assets, creating an efficient value circulation system. USDToch collaborates with leading quant funds and institutional investors, integrating advanced investment strategies and technologies, including AI, to effectively manage risks and optimize returns. Through these strategies, users can benefit from high-quality asset allocation and investment management services.
In addition to its focus on crypto assets, USDToch is at the forefront of tokenizing traditional investment targets such as stocks, bonds, and commodities through blockchain technology in the form of RWA (Real-World Assets). This decentralized approach widens accessibility for users and addresses the development bottleneck of overall investment returns in the DeFi sector. Looking ahead, USDToch aims to enable users to lend traditional assets on the blockchain, driving the cryptocurrency industry towards new frontiers of value discovery.
USDToch’s groundbreaking investment ecosystem provides investors with stable and super high returns while mitigating the risks associated with revolving and leveraging loans. With its decentralized approach and cutting-edge technology, USDToch empowers long-tail investors to regain competitiveness in the financial market, delivering income opportunities and higher returns through smart contracts.
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