On-chain lending platform dAMM Finance launches today, bringing capital efficient, transparent decentralized lending and borrowing to institutional investors.
The decentralized finance (DeFi) platform was born out of frustration with the existing options available to investors, dAMM Finance CEO Josh Baker told Decrypt. “dAMM is the protocol that we wish existed,” he said.
dAMM is an uncollateralized lending platform for any token, with algorithmically determined interest rates. It enables market makers and investors to borrow on dAMM from any token with a liquidity pool on the platform, allowing them to trade across both centralized and decentralized trading venues.
It aims to provide a no-fee decentralized borrowing and lending platform for non-stable crypto assets that’s both capital efficient and accessible for multiple token issues.
To ensure transparency and stability, only trusted institutions are able to participate as borrowers, while the platform offers high, sustainable interest rates on the liquidity/lending side. Interest rates are algorithmically determined by supply and demand, while loans on the protocol can be instantly claimed and borrowed for long periods, eliminating fixed-term deals with determined interest rates.
‘A perfect solution’
Baker told Decrypt that dAMM is “a perfect solution for two problems we had,” as the founder of market neutral market maker System 9.
Firstly, he explained, the majority of existing on-chain institutional lending platforms only lend stablecoins. dAMM, by contrast, aims to enable institutions to borrow and lend as many tokens as possible. “A huge edge we have is that we’re listing 25 tokens on day one, and our goal is 200 within the first year,” he said. “We’re not just launching on Ethereum, we’re launching on Polygon, Arbitrum, Optimism, Avalanche—every EVM-compatible chain possible.”
The second challenge is risk mitigation, one that dAMM is addressing by only lending to market neutral market makers. “For the last five years in crypto, there hasn’t been a single market maker default on a public platform or an institutional lending platform,” Baker said. “The only defaults were people that were lending to directional trading firms like Three Arrows Capital.”
To ensure that lenders on dAMM know who their counterparties are, the platform ensures that all addresses are labeled and subject to know-your-customer (KYC) and know-your-business (KYB) checks. “We’re going to start out publishing all the addresses of every market banker that borrows on our docs,” Baker said. “You’ll be able to see every single transaction they make, every single loan they take, where they’re moving all of your assets. You can see in every pool exactly who your borrowers are, who your counterparty is.”
That provides lenders with insight into what strategies market makers are pursuing; whether they’re moving funds to exchanges, performing yield farming or centralized to decentralized arbitrage strategies. Users can also see how much market makers are allowed to borrow, enabling them to gauge the risk level that the dAMM Foundation and pool delegates are prepared to accept for each borrower.
Bringing security to DeFi
The result, Baker explains, is a kind of “hybrid centralized-decentralized” model that addresses some of DeFi’s shortcomings. “Things like Three Arrows Capital don’t happen anymore in TradFi, because TradFi has prime brokers that basically monitor your risk 24/7,” Baker said. “If you ever get close to losing their leverage, they liquidate you in one second. Nothing like that exists in crypto.”
He added that it’s unlikely that lenders could give directional trading firms leverage in crypto “until there’s a proper prime brokerage built.” That, in turn, means the only people that can be lent to undercollateralized with any degree of security are market neutral market makers; something that dAMM aims to accomplish while widening the scope of assets that can be lent to them.
Future plans include risk management tools that enable users to specify what percentage of their loans will go to undercollateralized versus overcollateralized lending. “I think what’s going to be a huge advance in crypto is the ability to actually choose your risk parameters like that,” said Baker, who added that he hopes that it’ll help dAMM Finance become “the biggest lending platform in crypto.”
dAMM is an institutional lending platform for any token with algorithmically determined interest rates. Token issuers with a liquidity pool on dAMM Finance’s platform, market makers, and investors can borrow on the platform to provide liquidity and trade across all centralized and decentralized trading venues.
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