Unbound Finance is a decentralized, lending protocol that enables DeFi users to borrow over-collateralized synthetic asset loans. These loans are provided against liquidity pool (LP) tokens as collaterals. In Unbound V1, we accepted only stable pair LP tokens and provided a perpetual no-liquidation loan with 0% interest. While this worked great for stable pair tokens, it did not allow us to support pools formed by volatile tokens like WETH, WBTC, etc.
With Unbound V2, we will introduce support for LP tokens of volatile asset pools like WETH-DAI and WBTC-USDC. To support these pools, we need to introduce a mechanism for liquidations, as the value of these tokens is obviously volatile. The protocol needs to ensure that the supply of our stablecoin $UND is always supported by a more significant value of the collateral. This does not ameliorate the use case for stablecoin LP tokens. Stablecoin LP tokens will only increase in value as they accumulate fees; therefore, these users never have to worry about liquidations.
Whenever the value of a borrower’s collateral falls below the minimum collateralization ratio (MCR), their account is open for liquidation. Anyone can trigger this function by repaying the total borrowed UND. The liquidator will then receive the entirety of the collateral. As the MCR will always be greater than 100%, the liquidator will receive collateral worth more than UND provided, which they can sell to make a profit.
For example, for a loan of 250 UND drawn against $500 worth of collateral, the CR calculates to 200%. For an MCR of 110%, the borrower gets liquidated if their collateral value drops below $275 (around a 45% drop).
These market incentives will ensure that UND is always over-collateralized and maintains a stable value against the USD. This enables the use of UND as a means to leverage positions in liquidity pools but also as a stable store of value during volatile markets.
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 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.