The Benefits of Community Backed Lending Protocols
I. Introduction | II. Trading | III. Hedging | IV. Leverage | V. Conclusion
Yamfore will be the first community backed lending protocol offering crypto-backed loans with no margins calls, liquidation risk, interest repayments and indefinite loan terms. Yamfore is able to accomplish all of this due to the protocol owning all the capital that it lends out. Yamfore, unlike traditional lending protocols / platforms, isn’t reliant on external lenders providing capital to the protocol. The Yamfore protocol simply relies on the passive staking rewards earned by the deposited ADA collateral of borrowers in the protocol, with no further/other payment obligations required.
Because of this approach, Yamfore is effectively able to take the risk of price volatility in the market on behalf of the borrower with no liquidation consequences, allowing passive loan positions without fear of margin calls / liquidation risks, no interest repayments and indefinite loan terms. This blog post illustrates some of the strategies that can be used by borrowers utilising Yamfore or any other future community backed lending protocols.
All loan positions taken through Yamfore are simply represented as a Non-fungible token (NFT). These NFT deeds are tradeable via NFT marketplaces such as Jpg.store, CNFT.io, Artano and many more nft marketplaces. This enables some exciting strategies for borrowers such as actively trading up their loan positions in a sideways market. For example, a borrower initiates a crypto-backed loan against 100k worth of crypto assets through Yamfore at an 80% loan to value ratio (LVR)
This means a stablecoin payment of 80K is received by the borrower and an effective “20k deficit” for the borrower to be made whole again due to the 80% LVR. During sideways price movements in the crypto market, a borrower is still able to profit on their position by trading their exposure through reputable NFT marketplaces. This is especially true if the current LVR lending rates of Yamfore are significantly lower than the LVR rate secured by the borrower’s loan position. A sell price of 30k USD for the borrower’s 100k ADA & CBLP loan position at an 80% LVR could represent a very compelling offer for buyers when faced with a much lower LVR if opting to borrow directly from the protocol. If this trade were to successfully occur, the borrower would receive a 10% return on investment (ROI) based for their original 100k position, and the buyer is able to secure much favourable loan terms than they would have otherwise.
In the event of a major market downturn, the borrower is also able to effectively hedge their position by selling off their position and re-entering the market at a more favourable price point. This can reduce their paperlosses and or increasing their crypto asset exposure as well. Effectively being “ down in $USD but up in sats” so to speak. The sale of a borrower’s loan exposure would typically occur at a reduced, less favourable price point in comparison to a healthy market, but depending on how favourable the secured loan terms of the borrower’s loan position is / the severity of the market downturn. The borrower could possibly recuperate most, if not, their losses.
A borrower seeking to increase their exposure to the cryptomarket could effectively utilise the Yamfore protocol as a leveraging tool. This strategy basically consists of “double dipping” so to speak. For instance, a borrower opens a loan position on Yamfore and then exchanges their received stablecoin payment for more crypto assets to once again open another loan position and so forth. This is done repeatedly, till the borrower obtains their desired crypto exposure / exhausts their capital. With this strategy, a borrower can effectively multiply their crypto exposure without any risk of liquidation nor hassle and expense of managing interest repayments.
(Note: Please be aware this strategy is risky and not advised. This strategy should only be utisted by experienced crypto investors that fully understand all risk factors involved)
In summary these are just some of the many advantages of taking crypto-backed loans through a community backed lending protocol that puts the borrowers interest first. This represents a significant step forward in defi, truly enabling set & forget crypto-backed loans to anyone & everyone without the risk of liquidations / margin calls, interest repayments and indefinite loan terms. Please note, that there are risks to everything, including community backed lending protocols. Borrowers should always be cautious of overexposure to the native governance and utility token of the protocol and manage that risk accordingly.
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