AMM’s Lending Platform Brings Transparency to Institutional DeFi

The dAMM Finance on-chain lending platform launches today, offering institutional investors efficient and capital-transparent decentralized lending and borrowing.

Decentralized finance (Challenge) was born out of frustration with the existing options available to investors, said dAMM Finance CEO Josh Baker. Decrypt. “dAMM is the protocol we wish existed,” he said.

dAMM is an unsecured lending platform for any token, with interest rates determined by algorithm. It allows market makers and investors to borrow on dAMM from any token that has a pool of liquidity on the platform, allowing them to trade on centralized and decentralized trading platforms.

It aims to provide a cost-free decentralized borrowing and lending platform for non-stable crypto assets that is both capital efficient and accessible for multiple token issues.

To ensure transparency and stability, only trusted institutions can participate as borrowers, while the platform offers high and sustainable interest rates on the liquidity/lending side. Interest rates are algorithmically determined by supply and demand, while loans on protocol can be instantly claimed and borrowed for long periods of time, eliminating fixed-term contracts with set interest rates .

“A perfect solution”

Baker said Decrypt that dAMM is “a perfect solution for two problems we had”, as the founder of 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 huge advantage we have is that we list 25 throws on day one, and our goal is 200 in year one,” he said. “We’re not just getting started on Ethereumwe launch the PolygonArbitrum, Optimism, avalanche— all possible EVM compatible strings.

The second challenge is risk mitigation, a challenge that dAMM addresses by lending only to neutral market makers. “In the last five years in crypto, there hasn’t been a single market maker default on any public platform or institutional lending platform,” Baker said. “The only flaws were people who lent to directional trading companies like Three Arrows Capital.”

To ensure lenders on dAMM know who their counterparties are, the platform ensures that all addresses are tagged and subject to know-your-customer (KYC) and know-your-business (KYB) checks. “We will begin publishing all addresses of every market banker who borrows on our documents,” Baker said. “You will be able to see every transaction they make, every loan they take out, where they move all your assets. You can see in each pool exactly who your borrowers are, who your counterparty is.

This gives lenders insight into the strategies market makers are pursuing; whether they transfer funds to exchanges, perform yield farming, or centralize decentralized arbitrage strategies. Users can also see how much market makers are allowed to borrow, allowing them to gauge the level of risk the dAMM Foundation and pool delegates are willing to accept for each borrower.

Bringing Security to DeFi

The result, Baker explains, is a sort of “centralized-decentralized hybrid” model that fixes some of DeFi’s shortcomings. “Things like Three Arrows Capital don’t happen in TradFi anymore, because TradFi has master brokers who basically monitor your risk 24/7,” Baker said. “If you ever come close to losing their leverage, they liquidate you in a second. Nothing like this exists in cryptography.

He added that lenders are unlikely to be able to give directional trading firms leverage in crypto “until a proper prime brokerage is built.” This, in turn, means that the only people who can be sub-collateralized with any degree of security are market-neutral market makers; what dAMM aims to accomplish while expanding the range of assets that can be lent to them.

Future plans include risk management tools that allow users to specify what percentage of their loans will go to under-secured loans versus over-secured loans. “I think what’s going to be a huge breakthrough in crypto is the ability to actually choose your risk settings like that,” said Baker, who added that he hopes this helps dAMM Finance become “the largest crypto lending platform”.

dAMM is an institutional lending platform for any token with algorithmically determined interest rates. Token issuers with a pool of liquidity on dAMM Finance’s platform, market makers and investors can borrow on the platform to provide liquidity and trade on all centralized and decentralized trading platforms.

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Article sponsored by dAMM Finances

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