What is Atlendis Protocol?
Uncollateralized lending continues to be a heated topic in the DeFi space, as it enables borrowers to access liquidity without putting capital upfront. In order to conduct financial operations in the trustless Web3, users have to offer strong capital guarantees before taking a crypto loan.
Overcollateralization requirements are especially higher for DeFi protocols (up to 200%) due to the volatility of crypto markets. While it acts as a security mechanism, overcollateralized loans also place a sealing on the amount of debt that can be taken.
Limited debt position translates into inefficient DeFi markets. The ecosystem is filled with idle capital sitting in crypto wallets, locked in smart contracts, or held by protocols and DAO treasuries. As protocols require borrowers to lock in collateral to obtain a loan, consequently many protocols and DAOs struggle to fund their operations and cannot use debt as a funding option, therefore they lack recurring sources of liquidity to meet their growing needs.
If DeFi can't find a solution, we must look elsewhere.
TradFi has been the stronghold of uncollateralized lending in a custodial, privately owned, centralized banking network. The beneficiaries of uncollateralized loans are usually big businesses. That is because they can prove their solvency, which in itself is a guarantee that they can honor their debt. Institutional borrowers receive a credit score that determines the maximum amount of debt they can take.
Atlendis Protocol derives its value from applying the same mechanism to DeFi protocols and companies. The protocol aims to connect retail investors in crypto with institutional borrowers from DeFi and outwards.
The implementation of a native crypto credit line comes with advantages for borrowers and lenders alike. Lenders are no longer limited to the opaque process of traditional lending, where financial operations of the borrower are held private. Instead, lenders can see in real-time the actions taken by the borrower as well as the yield their receive. For borrowers, this represents a unique service to access capital for their crypto operations.
As a zero-collateralized lending platform, Atlendis platform has a higher credit risk than its over-collateralized counterparts. To mitigate the risk, Atlendis takes several measures.
One of them is whitelisting participants. Loans on Atlendis are available only to a select few institutional borrowers who have undergone KYC and financial checks. Having their reputation at stake, there should be a smaller risk of default.
From the lenders' perspective, they are able to freely select their borrowers. They also select their preferred lending rate based on their risk appetite. Users retain a degree of control in choosing where to loan their funds inside Atlendis Protocol. Liquidity providers can also diversify their lending portfolio by lending to a multitude of borrowers.
As a DeFi platform, Atlendis is subject to liquidity risk. If the liquidity on Atlendis gets reduced, borrowers can take less debt, and liquidity providers can loan less. Atlendis mitigates this risk by negotiating the upper and lower bounds of lending rates with the borrower. This helps the borrower get more comfortable with the rates when accessing the liquidity pool.
Unused capital is automatically placed into Aave where it generates yield, therefore any negative event on Aave will affect Atlendis.
Since its inception in 2021, Atlendis protocol has never been hacked. The code has been audited and the team offers bounty bugs to spot vulnerabilities early on.
How does Atlendis Protocol work?
Atlendis protocol is connecting retail crypto lenders to institutional borrowers. Lending without collateral represents a great way to make capital efficient. Institutions can access instant crypto liquidity and repay lenders at an advantageous rate. So far, it sounds like a TradiFi platform, which in many ways it is. The DeFi component of Atlendis stems from the liquidity pool architecture and the use of crypto tokens.
Atlendis Protocol Borrowing
Once a borrower has been whitelisted, the process is straightforward. He creates a pool with his desired asset, and a maturation period. From that moment, users can submit their crypto assets at the lending rate of their choice.
The protocol makes use of a single pool per asset per borrower. This simplifies the experience for both the lender and the borrower, as they only need to keep track of a single asset. It also reduces some of the risk associated with price volatility present in liquidity pools with more than one asset.
Borrowers reward liquidity providers for providing capital in the form of liquidity fees. The liquidity fees are fixed with each borrower and correspond to a % liquidity fee rate applied on the maximum borrowable amount. The liquidity fees apply only on unused capital. If the borrower uses the entire liquidity, they will not pay fees.
Lenders may deposit more crypto than the borrower needs at the moment. In this situation, the borrower pays the interest rate on the unused used capital, while the rest is deposited on Aave, earning Aave’s APY.
The liquidity fees are paid upfront at the pool's creation time and are distributed to the lenders in a trustless manner while the amount of liquidity rewards last.
Atlendis Protocol Liquidity Pools
Liquidity pools are divided into a set of ticks that can be converted into order books. Ticks are like mini-pools, representing various lending rates at which borrowers can access capital. For example, we can have two ticks, one at 3% interest rate, and the second at 8%. Borrowers will naturally use the capital in the first tick because it's set at a lower rate. In case they need more liquidity, they will move on to the second tick.
When adding liquidity to the pool, liquidity providers are able to choose their lending rate from a predefined set of lending rates. Their funds are then placed into the corresponding tick and available for the borrower. The bid prices are derived from the chosen lending rate and the maturity of the pool.
At this point you may ask yourself: "why not set the lending rate algorithmically?" While this is certainly possible to do, it would not properly reflect the level of risk that the lenders are taking. Liquidity providers should still be able to select their own lending rate based on the amount of risk they are willing to take for the potential return they desire.
Each liquidity provider’s deposit on the Atlendis protocol is characterized by a position. The positions are represented by an NFT with original artwork.
How to make money on Atlendis Protocol?
Profits can be made on Atlendis Protocol by providing liquidity to the pool of your choice. Borrowers are willing to pay an interest rate for the capital provided, which makes it a low-effort solution for passive income. Besides the due diligence made by the team, you can always check the ratings of the borrower for yourself. Remember, there is always a degree of risk associated with DeFi protocols.
Atlendis Protocol Lending
Lenders start accumulating liquidity rewards as soon as their funds are exposed to being borrowed. That is on day one if the pool is not actively used, and at repayment time if the pool is fully used at deposit time.
To start lending on Atlendis, follow these steps:
1. Go to the Atlendis app
2. Click on the "Pool" tab and select the pool you want to join
3. Select a rate
4. Choose the amount you would like to lend
5. Once you have entered the desired amount, click “Deposit”
6. Approve the transaction
7. Profit
When choosing the interest rate, keep in mind that positions with lower interest rate are more favored by the borrowers. If the liquidity is low, you may want to go for a higher interest rate. A borrower that needs more capital will eventually need to use the entire liquidity, which includes higher rates too.
If the rate you originally chose for your position is too high, borrowers might not match your position in a loan very often. Therefore, you can lower your rate. Remember, you can adjust your rate only if the funds are not borrowed.
The beauty of Atlendis is that you can sell your position even if the funds are borrowed. That is because your position is converted into an NFT. The NFT representing your position can then be sold on the Atlendis NFT marketplace.
Because Atlendis is still a new protocol, and borrowers are just getting onboarded, you may see that the borrowers haven't yet used the liquidity. The unused liquidity is deposited into Aave. While yields on Aave may be significantly lower than the interest from borrowing, it incentivizes depositors to keep their liquidity readily available in the pool. You can withdraw the unused liquidity at any time by accessing the dashboard.
Atlendis Protocol Borrowing
Borrowers are authorized entities on the Atlendis protocol that can open pools, incentivize lenders to deposit funds, and take out uncollateralized loans.
Institutional borrowers include Web3 protocols, DAOs, Web2, corporations, market makers, and so on. Entities that want to borrow on Atlendis need to go through a scoring process. The protocol has assigned a third-party in charge of screening potential borrowers, called Credora.
The process of whitelisting is centralized, as it's done by the team. In the future, it will be done on-chain by the Atlendis community.
Assuming you have been whitelisted, you can proceed to borrow funds by following these steps:
1. Open the Atlendis app
2. Go to the "Borrow" tab
3. Enter the amount you would like to borrow
4. When you are ready to proceed and borrow, click “Borrow,” and confirm the transaction in your wallet
5. After the transaction is confirmed, the funds have been transferred to your wallet
When borrowing on Atlendis protocol, your borrowing amount is limited to the credit limit and the amount in the liquidity pool. The lending rate will be automatically calculated based on the amount you choose to borrow and the state of the order book. You will see the “Maturity” of the loan and the “Estimated Repay Start.” When the loan reaches its maturity, borrowers will have to pay the loan back with the agreed liquidity fee.
Liquidity fees are paid by the borrower and distributed as liquidity rewards to liquidity providers when their capital is not actively loaned out. The liquidity fees are only paid on unused capital, meaning that if the borrower borrows the totality of their authorized capacity, they will not pay liquidity fees until repayment.
Borrowers can increase the reserve by incentivizing participants. The reward can be increased either by days or by amount.