The on-chain lending platform dAMM Finance launches today, offering institutional investors capital-efficient, transparent, decentralized lending and borrowing.
The decentralized financing (DeFi) platform was born out of frustration with existing options for investors, said Josh Baker, CEO of dAMM Finance decrypt. “dAMM is the protocol we wish existed,” he said.
dAMM is an unsecured lending platform for any token with algorithmically determined interest rates. It allows market makers and investors to borrow on dAMM from any token with a liquidity pool on the platform, allowing them to trade on both centralized and decentralized trading venues.
It aims to provide a fee-free decentralized borrowing and lending platform for non-stable crypto assets that is both capital efficient and accessible to multiple token issuances.
To ensure transparency and stability, only trusted institutions can participate as borrowers, while on the liquidity/lending side, the platform offers high, sustainable interest rates. Interest rates are algorithmically determined by supply and demand, while loans on the protocol can be drawn down immediately and borrowed for long periods of time, eliminating fixed-rate fixed-term deals.
“A perfect solution”
Baker tells decrypt that dAMM is “a perfect solution to two problems we had,” as the founder of the market-neutral Market Maker System 9.
First, he explained, the majority of existing on-chain institutional lending platforms only lend stablecoins. dAMM, on the other hand, aims to allow institutions to borrow and lend as many tokens as possible. “A big advantage we have is that we list 25 tokens on day one, and our goal is 200 within the first year,” he said. “We don’t just start like that etherwe start up polygondetermination, optimism, avalanche—any EVM-compatible chain possible.”
The second challenge is risk mitigation, which dAMM addresses by lending only to market-neutral market makers. “In the last five years in crypto, there hasn’t been a single market maker failure on any public platform or institutional lending platform,” Baker said. “The only defaults were people making loans to directional trading firms like Three Arrows Capital.”
To ensure lenders know who their counterparties are on dAMM, the platform ensures that all addresses are tagged and undergo Know-Your-Customer (KYC) and Know-Your-Business (KYB) checks. “We will start publishing all the addresses of all market bankers who lend money on our documents,” Baker said. “You can see every single transaction they make, every single loan they take out, where they move all your assets back and forth. You can see exactly who your borrowers are, who your counterparty is, in each pool.”
This tells lenders what strategies market makers are pursuing; whether they are moving funds to exchanges, engaging in yield farming, or engaging in centralized to decentralized arbitrage strategies. Users can also see how much market makers are allowed to borrow, thereby assessing the level of risk that the dAMM Foundation and pool delegates are willing to accept for each borrower.
Bring security to DeFi
The result, Baker explains, is a sort of “hybrid centralized-decentralized” model that addresses some of DeFi’s shortcomings. “Things like Three Arrows Capital don’t happen with TradFi anymore because TradFi has top tier brokers that basically monitor your risk 24/7,” Baker said. “If you’re ever close to losing your leverage, they’ll liquidate you in a second. Nothing like that exists in crypto.”
He added that lenders are unlikely to be able to lend crypto leverage to directional trading firms “until proper prime brokerage is established.” This in turn means that the only people who can be undercollateralised with any degree of certainty are market neutral market makers; something dAMM aims to achieve while expanding the scope of assets that can be lent to them.
Future plans include risk management tools that will allow users to specify what percentage of their loans should go to undercollateralized or overcollateralized loans. “I think what’s going to be a big advancement in crypto is being able to actually choose your risk parameters like that,” said Baker, adding that he hopes this will help dAMM Finance, “the largest lending platform in crypto.” will.
dAMM is an institutional lending platform for any token with algorithmically determined interest rates. Token issuers with a liquidity pool on the dAMM Finance platform, market makers and investors can borrow on the platform to provide liquidity and trade on all centralized and decentralized trading venues.
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