Since their inception, crypto loans have played a central role in the success of Decentralized Finance (DeFi). Looking at the numbers, the combined Total Value Locked (TVL) for lending platforms like ZENTEREST accounts for nearly half of the entire TVL deposited in DeFi smart contracts today. Considering the ability to borrow and lend is baked into the origins of finance itself, it’s no mystery why DeFi borrow/lend protocols hold so much value.
It’s a tall order to try and improve on a financial service that dates back to the renaissance. But the Medicis and their high rolling contemporaries never had access to something. MANTRA DAO does, blockchain technology. ZENTEREST aims to revolutionize crypto loans for the masses, changing how people borrow and lend crypto for the coming era, with future versions continuing to innovate DeFi borrowing and lending in the years to come.
ZENTEREST has beenis built using code secured and developed by (one of the original DeFi industry platforms for borrowing and lending) Compound and its offshoot CREAM Finance. It provides a wide selection of small and large-cap tokens curated by MANTRA DAO and made available for borrowing and lending. There are currently over 50 tokens that Sherpas can deposit or borrow through ZENTREST, and this wide array of assets is constantly expanding.
MANTRA DAO Innovates DeFi Lending With KARMA
One of the biggest ways that ZENTEREST sets itself apart from other DeFi borrowing and lending platforms is through innovations like KARMA, a points system similar to a credit score that allows Sherpas in our community to borrow crypto unlike ever before.
Providing an under-collateralized DeFi loan service has long stood as one of the holy grails within the DeFi community. In pursuit of this holy grail, MANTRA DAO has introduced our innovative KARMA system to make under-collateralized lending possible for our Sherpas worldwide.
Sherpas earn KARMA from interacting with MANTRA DAO’s DeFi services and contributing to the greater good of the community. KARMA can be earned from many different activities including participation in DAO governance, buying MANTRA POOL entries, and staking tokens for consecutive months.
In addition taking loans and paying them back on time can earn Sherpas even more KARMA, just like improving a credit score. By rising through KARMA tiers, Sherpas can access unique perks like reducing their interest rates on loans by up to 50%. These incentives are our way of showing our appreciation to MANTRA DAO’s most active and supportive members, who will gain real financial benefits from their actions.
Most importantly, KARMA will revolutionize how DeFi loans have worked up until now because our Sherpas will finally be able to borrow more than they have deposited.
Why DeFi Lending Resorts to Over-Collateralized Loans
DeFi loans have historically been over-collateralized for many reasons, but the primary cause lies in the volatility of the crypto market. Over-collateralization ensures that users can pay back their crypto loans if the value of their deposited tokens begins to depreciate.
When collateral depreciates beyond the agreed terms for a loan, borrowers must add additional collateral, repay some of their debt, or face liquidation. Liquidations ensure DeFi lending protocols don’t lose money, and borrowers agree to the terms of liquidation when taking out a loan.
These liquidation terms are set by a smart contract and are set in code that cannot be altered, so they are a moderately fair way of recouping assets from those who cannot repay. However, this system of providing more support for those who hold greater assets than they would borrow locks out many people who would like to borrow more than they already have. And this is odd, as the usual reason people take out loans in traditional finance is that they are lacking funds.
Why Borrowing and Lending is a Big Deal for DeFi
DeFi borrowing and lending allows users to deposit their crypto tokens into a borrow/lend smart contract and earn interest from other users who borrow their crypto. This system provides a passive source of income by allowing DeFi users to collect the interest a bank would otherwise receive, thanks to the trustless nature of blockchain technology.
As these deposited tokens earn interest from other borrowers, they can also be used as collateral for a loan so that users can borrow tokens against their deposits. Thus, borrowing against one’s crypto assets has become a DeFi standard for increasing one’s liquidity while holding onto dynamically priced assets for the long haul.
This process allows DeFi users to yield interest on tokens they want to HODL, while also having tokens on hand for other DeFi opportunities.
For example, if a Sherpa stakes any tokens they have no interest in trading, they can no longer use those tokens. These tokens also remain illiquid as long as they are bonded in a staking contract. The rewards for staking might be lucrative, but crypto moves so quickly that an opportunity to realize even greater returns can pass Sherpas by while their tokens are locked up elsewhere.
When Sherpas deposit tokens in a borrow/lend DeFi platform, they can realize gains from collecting interest on tokens lent, and at the same time, they can borrow against these assets to participate in yield farming or swap for other tokens that are expected to appreciate in value and put them to work in DeFi.
The possibilities for leveraging DeFi lending protocols for increased gains are many. In fact, attentive Sherpas can find ways to play the money market and swing their borrows and lends strategically into a profit. Smart contracts for DeFi lending require the number of tokens borrowed to be returned, not their value when borrowed. This means one could theoretically arbitrage tokens over periods of highs and lows instead of hunting for price discrepancies across markets.
Creating a New DeFi Lending Paradigm for the World
Over-collateralized loans don’t make much sense for the world outside of DeFi. After all, people don’t usually give banks $100 to borrow $50! Yet this is how DeFi lending has worked for years.
This is a major reason why MANTRA DAO is changing the game, harnessing the power of KARMA to transform over-collateralized DeFi lending. And we are making these changes to help bring DeFi to the whole world. Under-collateralized DeFi loans will most likely drive the future of peer-to-peer lending, and ZENTEREST will lead the charge as a community-driven DeFi lending protocol offering a wide range of assets operating on multiple networks.
Start your DeFi journey with ZENTEREST today!