Cryptocurrency plunge creates uncertainty in DeFi
Extreme market conditions (19 May 2021) provide “big test” for DeFi ecology.
According to DeBank statistics, the total settlement of on-chain loan agreements reached a record high of $614 million on the day of the market collapse, with Venus liquidating more than $250 million of loans on the BSC chain. Venus also generated $100 million in bad debts as a result of malicious manipulation of the market.
The extreme market conditions severely tested the risk control ability of loan providers. Compared with Venus on BSC, FilDA on HECO demonstrated a more stable performance, liquidating funds of about $5 million on the same day, with no bad debt. By setting a lower mortgage rate for illiquid assets in loan agreements we were able to prevent excessive liquidation.
As latecomers to the lending circuit, we not only face competitive pressure, but also have to deal with the ebb and flow of the market. Five months after launch, we have caught up with established providers, such as Compound, at the product level, and are steadily adding functionality. In order to expand our market share, we have put cross-chain deployment on BSC and ETH on the agenda.
More than 14 days have passed since the “May 19” plunge, and the panic in the crypto-asset market has not dissipated. On June 2, BTC swung up and down, settling at $37,000, still 42.9% down from its high of $64,800.
Every time an extreme market occurs, it will bring a stress test to the blockchain ecosystem. In last year’s “March 12” crash, Maker, the biggest chain lending agreement, suffered a liquidation crisis, leaving more than $5 million in bad loans. More than a year later, the market size of DeFi has expanded hundreds of times, and when the Black Swan comes again, the stability of chain agreements, especially lending applications, has attracted much attention.
On May 19, the total settlement of loan agreements on the chain reached an all-time high of $614 million, according to DeBank. Among them, the Venus settlement of the loan agreement on the BSC chain exceeded $250 million, accounting for 40.79 per cent of the total liquidation.
The huge amount of liquidation was not only related to the collapse. The night before the collapse, Venus governance token, XVS, was manipulated by malicious markets, where tens of millions of dollars were moved in a short period of time to pull the price of XVS from more than $144 to $70. Malicious actors then borrowed thousands of BTC and tens of thousands of ETH at high prices. Subsequently, XVS prices quickly collapsed and XVS was liquidated, causing more than $100 million in bad loans to the Venus platform.
Extreme market conditions, the DeFi world “Pandora’s box” was once again opened. Now that the main position of DeFi is spreading from Ethereum to BSC, Heco and other public chains, the outside world pays more attention to whether these new DeFi protocols can pass the test of the market.
This time, FilDA, Heco’s main lending platform, did not have an accident in the extreme market conditions. According to statistics, on May 19, about $5 million of FilDA assets were liquidated, accounting for 1% of $500 million in locked positions. All liquidations were completed by market participants and no bad debt was created.
From our app, FilDA currently supports over 18 types of asset for lending, 10 more than Compound, one of Ethereum’s leading lending platforms. How does FilDA make a smooth transition in extremes when most assets fall sharply?
FilDA has open clearing markets where all can participate in clearing for a 10% reward on cleared funds. The clearing mechanism will allow liquidators to actively liquidate and prevent untimely liquidation from causing “short positions.”
At present, the clearing market is mostly open, whether it is on the chain lending agreement or leveraged mining platform. However, it is difficult to ensure that market participants’ clearing alone is not fool proof when the market fluctuates wildly. In order to guard against the gradual spread of systemic risks brought by extreme market conditions, FilDA has made differentiations in risk control, We have set different mortgage rates for assets with different liquidity. For example, BTC liquidity is better, so the mortgage rate is higher; Less liquid assets have less money to lend.
FilDA has strict screening criteria for the types of assets online. If liquidity is particularly small then asset mortgage rates will be limited to less than 50%, to prevent extreme market liquidations. In addition, FilDA uses ChainLink oracle feed prices, rather than the price given by a single DEX, which help protect against malicious liquidation caused by price manipulation.
If the extreme market is a big test of a lending agreement’s risk control level, from the performance point of view, especially since only starting in January this year, FilDA demonstrated considerable strength. But in this current market slump, the challenges for new DeFi protocols are just beginning.
Responding to market ups and downs with product evolution
From the data on the chain, the impact of the collapse of the market on the DeFi ecology is considerable. The total DeFi TVL this year has been more than $128 billion, according to DeBank. It has now fallen 35 percent to $83.1 billion. Total borrowing volume in the lending sector is also shrinking, from $26.7 billion to $17.05 billion.
For all lending agreements, the decline in the market leads to a decline in liquidity mining income, but also reduces the willingness of users to borrow. How to maintain competitiveness in the low market has become a real problem.
In the case of FilDA, the platform’s total deposits peaked at more than $2.1 billion and have now fallen back to about $590 million. As the first loan agreement on the HECO chain to list on Huobi, the price of its governance token FILDA also fell from a maximum of $2.42 to $0.24. On social media, there are voices who feel that “FilDA products are doing well, but the currency is not very powerful.”
In the view of FilDA officials, it is inevitable that the token price will fall under the overall bad situation in the market. In addition, FILDA tokens are also continuously released through liquidity mining, which has formed a certain selling pressure on the market. DeFi assets have their own development logic:
Ethereum early projects also experience a long period of consolidation before breaking out. FILDA as a governance token, along with the development of the project’s DAO governance scope, will become more and more influential, and the demand will gradually increase.
Currently, FilDA has completed voting on seven proposals and established mechanisms such as team repurchase of dividends. FilDA core developers revealed that the team will also look for suitable opportunities to make adjustments to FILDA’s economic model: token deflation. In addition, FilDA is developing new features which will give rights to token holders in the future. For example, users will need FIlDA to use new features, and the FilDA paid out for services will be destroyed.
The FilDA team believes that whether it’s the size of the lending agreement or the value of the governance token, the most critical support depends on whether the product is secure enough, the experience is friendly, and the functionality is rich.
FilDA gets major or minor upgrades or updates almost every week. For example, increasing new asset support, asset interest rate adjustment, website page optimization, etc. The development and user needs require the development team to constantly update and adjust. In the current market slump, FilDA captured more market demand, which is also an important reason for its deployment of instant loans..
When a user is over-mortgaged, there is no position to move, For example, users mortgage BTC to lend USDT, but when BTC plummets, users must also pay USDT to settle the mortgaged BTC, otherwise they will face liquidation; Even if users want to sell BTC, they have to take it out to sell it. According to FilDA, this is a common pain point for borrowers, and instant loans are just the thing to solve this pitfall.
The essence of the instant loan is a lending tool that allows you to borrow first and then repay, and only needs to be completed in one transaction. Users can now use any deposited asset to repay any of their loans, and deposited assets can be converted into other assets without the need for withdrawals and multiple transactions.
- BTC collateral
- USDT loan
- Sufficient HT available to clear the USDT loan, but deposited on FilDA rather than in the connected wallet
- To clear the USDT loan the user chooses to use their HT in savings to repay. The contract processes this all automatically.
What next for FilDA?
Further to the recent addition of Repay with Savings, future features such as limit selling will be introduced.
Users holding assets on FilDA have to withdraw and find a suitable DEX should a desired selling position be desired. Automating this process is being investigated.
Users who have deposited BTC on FilDA and want to sell it for $50,000 will be able to set a command for their deposit to be sold when BTC reaches $50,000, and automatically deposit the realised USDT into their FilDA bank savings. The contract will complete the exchange automatically, without any manual withdrawal/exchange transactions needed.
Obviously, completing this step requires FilDA and other DEX protocols to make LEGO combinations. In fact, as a platform for the precipitation of funds in the chain, FilDA has now completed business coupling with more than ten agreements on HECO chain, such as Depth, MDEX, Belt, Booster, and HFI.one, to expand the capital entrance and improve the capital utilization.
As long as it is approved by a well-known audit institution, which can bring more application scenarios to FilDA users and empower the FILDA token, the team will actively seek cooperation. Products with rich features and ecological expansion potential are the best choice to cope with market ups and downs.
Cross-Chain Deployment to Expand Market Share
Lending agreements have become one of the hottest topics in today’s DeFi ecosystem, and competition has intensified. Throughout the market, most lending agreements remain at the level of mature lending products such as Compound. Innovation is particularly valuable at this time, which also gives birth to FilDA driving forward to seek further opportunities.
We at FilDA believe that transactions are value exchange, lending is value precipitation. Before loans, users could choose to put the money in a wallet, but since there is no income, it can not reflect the value of time. Lending applications turn assets into interest-earning assets. In order to boost users’ earnings, FilDA not only allocates 95% of Tokens to lending users and users participating in DAO governance, but liquidity mining pools can be found on FilDA too. Through the connection with MDEX, users on FilDA can participate in liquidity mining, capturing even more revenue.
After five months of development, FilDA is not willing to settle in the Heco chain, cross-chain deployment is a key expansion point to gain a further increment of growth.
In fact, since the birth of FilDA, it has been positioned as a cross-chain lending DeFi project. At the beginning of the development of NEO and Elastos through their two public chains, FilDA has now realized the two heterogeneous chain assets lending function. Moving forwards, FilDA will be extended to BSC and ETH Layer 2.
Lending spreads on various chains such as BSC and ETH are more dramatically obvious. For example, Compound sometimes has borrowing interest of 2% ~ 3%, and FilDA may be 20%, but because of the liquidity of assets, users cannot take advantage of such opportunities. There is still a lot of money to enter FilDA. Multi-chain deployment is most certainly on the agenda. When other mainstream public chains complete the layout, the scale of borrowing will also increase.
There is precedent for business expansion across chains. After MDEX landed in BSC, its TVL doubled, and the number of users increased significantly. And from social media, it was seen, perhaps after the attack on Venus, some users hoping that FilDA and other stable providers of lending agreements be deployed on the BSC chain.
As more than a dozen DeFi protocols have been hacked recently, security issues have also caused concern in the industry. In this regard, rest assured that FilDA has reached cooperation with third-party security companies such as Spirit Trace Security, Know Chuangyu, Slow Fog Technology and Certik. Each code upgrade will be re-audited to ensure security.
Even as a latecomer to the DeFi world, FilDA has passed the test of extreme market conditions and is gradually becoming the new force to push the DeFi wave even higher. With 108k wallets holding FilDA, a new website and UX being developed too, we expect the demand of DeFi aficionados will continue to grow, and the pressure of this particular latecomer will be significant.