Welcome to the next big thing in DeFi: Unbound V2!
Over the last year, our team has been hard at work developing a protocol that enhances value creation by unlocking new forms of liquidity management in decentralized finance. With Unbound V1, we allowed users to borrow UND (Unbound’s USD-pegged stablecoin) by collateralizing stable pair liquidity pool tokens (LPTs) in a decentralized, permissionless manner for zero per cent interest and no risk of collateral liquidation. With our new protocol, we will be expanding to support all kinds of liquidity on decentralized exchanges including ERC-20 tokenizations of concentrated liquidity positions of Uniswap V3 like DEXs and LP tokens of volatile asset pairs.
With Unbound V2, we will be introducing support for positions on concentrated liquidity market-making (CMLL) decentralized exchanges (DEXs). CMLLs like Uniswap V3 have revolutionized market-making on DEXs. They provide significantly higher capital efficiency and have attracted mammoth amounts of liquidity in only over a year. We see this trend marching forward for a while, with Trader Joe and Quickswap introducing their own CLMMs. Even though CLMMs provide enhanced capital efficiency, unlike Uniswap V2 like DEXs, they do not provide fungible ERC-20 like LPTs. Positions on these DEXs are represented in the form of NFTs, making them difficult to collateralize. Unbound V2 will support positions on second-layer protocols that consolidate these positions, like DefiEdge and Arrakis.
In our new avatar, we will introduce support for the collateralization of LPTs of volatile assets like WETH-DAI. Stablecoin pairs on Uniswap v3, at the time of writing, accounted for around $1 billion of liquidity on the Ethereum mainnet. The total value locked on Uniswap v3, on the other hand, is ~$3.5 billion. Expanding support to these liquidity pools significantly enhances the share of liquidity Unbound has access to.
Price Stability Mechanisms
As part of our new protocol version, we have introduced improved price stability mechanisms (PSM), including liquidation and redemption, to maintain UND’s value closest to its peg.
In order to ensure that UND is always overcollateralized, we have included Liquidations in Unbound V2. This does not deter the earlier use case of using collateralizing only stablecoin pairs, as pragmatically, those users do not have to worry about getting liquidated anyway. At the same time, we can now serve users who wish to earn even more yield from their existing liquidity.
In order to ensure a tight price peg of $1 for UND, we will also be including a redemption mechanism. The account with the lowest collateralization ratio is eligible for redemption. This will of course only be profitable when someone is able to obtain UND from secondary markets at less than $1. If you are unsure how this works, do not worry, we will explain the game theory and mathematics governing this mechanism in more detail in future articles.
About Unbound Finance
Unbound Finance is a novel, non-custodial lending platform, driven towards enabling newer and better opportunities of yield with a view to improving the overall capital efficiency of the DeFi ecosystem. The platform enables DeFi users to borrow over-collateralized synthetic asset loans in the form of UND stablecoin by collateralizing liquidity pool tokens (LP tokens) and concentrated liquidity positions of next-gen AMMs such as Uniswap v3.
Through synthetic assets like UND stablecoin, Unbound aims to unlock the liquidity available in DeFi DEXs and to enable the easy flow of this liquidity from one chain to another without actually removing it.
The key highlights of the protocol are as follows:
- Interest-free borrowing: Unbound does not charge any interest on the borrowed UND.
- Perpetual borrowing: At Unbound, borrowers have unlimited maturities. Users can unlock the underlying collateral at any time by simply paying off the outstanding debt.
- Stablecoin UND: UND is the first flagship product of the Unbound protocol. It is a decentralized, cross-chain stablecoin designed to be native to the AMM space.
- Factory Smart Contracts: Unbound makes use of liquidity lock contracts that are permissionless and support EVM-based AMMs like Uniswap, Balancer, Curve, SushiSwap and the like.
- Collateralizing concentrated liquidity positions: Unbound is one of the first protocols that allows concentrated liquidity positions to be used as collateral for borrowing synthetic crypto assets such as UND stablecoin.