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DeFi Lending Intro
Introduction to DeFi Lending
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DeFi Lending - An Introduction

Continuing Education Course

Dr. Nils Bundi


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Dr. Nils Bundi



width:50 Founder Vesu Lending width:50 President DeFi Collective width:50 Lecturer ZHAW School of Engineering


We HODL

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What if?

  • I could earn while HODLing
  • I could borrow more crypto
  • Directly from my wallet
  • Through the internet
  • Anonymously
  • Globally
  • 24/7/365

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TVL in DeFi Lending

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One of the largest DeFi sektors

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How it works

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Position health

Loan-to-value (LTV) measures value of debt vs collateral

$$ LTV = \frac{\text{Value of Debt}}{\text{Value of Collateral}} $$

Health factor (HF) measures liquidation risk

$$ HF = \frac{\text{LiquidationLTV}}{\text{LTV}} $$

Liquidate position if HF<1!


Liquidations

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Liquidation models

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In practice

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Liquidators

  • Public (everyone can be a liquidator)
  • Liquidators make profit
  • Highly competitive market dominated by MEV-bots
  • Capital-neutral liquidations use flash-loans

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Flash Loans

  • Borrow any amount without collateral
  • BUT: repay in same tx
  • IF NOT: entire tx reverts
  • Zero counterparty risk
  • Used for liquidations, arbitrage, leverage, position management (eg collateral swap, UX)

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Price Oracles

  • What is the value of a position's collateral and debt?
  • Price oracles make (off-chain) data available in lending protocols

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Interest rates

  • What is the cost of borrowing?
  • Mostly variable based on market's utilization
  • Utilization = $\frac{\text{"total debt"}}{\text{"total supplied"}}$
  • State-of-the-art: fully autonomous with Curve Controller

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Vesu Lending Markets

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TradFi vs DeFi

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Use cases

  • Liquid "HODLing"
  • Leverage
  • Carry-trade
  • Shorting
  • "Looping"
  • Financing of arbitrage and MEV strategies
  • etc.

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Lending recap

Bank DeFi DeFi Flash Loan
Counterparty Bank Smart Contract Smart Contract
Collateral <100% >100% No
KYC Yes No No
Interest Fix/variable Fix/variable Fix fee
Maturity  Fixed Open 1 Block
Liquidation Through courts On-chain No need
Access Local (Jurisd.) Global Global
Service hrs Business hrs/days 24/7/365 24/7/365

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Thank you!


Twitter @nilsbundi
LinkedIn Nils Bundi
GitHub @nbundi

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