Unlike the traditional lending system in the real world where about 10% is credit, meaning unsecured or partially secured, in blockchain, loans are only over-collateralized, and there is currently basically no credit.
For ordinary people, most also encounter credit loans, not just bank credit cards, mortgage loans, and car loans, but also borrowing from friends and family, mostly using their own credit (future cash flow) as collateral. The blockchain cannot lock in your future cash flow, so it is all over-collateralized, equivalent to using real-world assets like houses as collateral for cash.
For those who primarily encounter credit in traditional finance, it is difficult to understand lending protocols when first entering the crypto space. To lend 700 yuan, one must first deposit 1,000 yuan. If I already have this money, why do I need to borrow?
Simply put, when we talk about lending protocols, we are actually talking about leverage.
For example, lending protocols like Aave, Morpho, Kamino, or depositing in Yubi Treasure, currently have a stable APR of about 40%, which actually provides liquidity for leverage.
When you deposit USD into Morpho, the borrower can use collateralized assets, like ETH, to pay interest and borrow, for example, 50% of USD. If ETH falls by 50% in the future, the collateralized ETH will be liquidated, and the borrower will not have to repay, essentially selling at that price.
Thus, the borrower user of the lending protocol is essentially betting that their assets will not be liquidated and that they can still make money using the collateralized funds, the most common being to buy more ETH or other coins.
Just like yesterday, the ZKAS criminal gang used 5,270 ETH of the stolen ETH as collateral to borrow 11.59 million DAI and then cycled back to buy 3,500 ETH. If ETH rises by 10%, their profit from these 5,000 stolen ETH would increase from about 1.5 million to about 2.4 million.
The situation is similar with Yubi Treasure, so when the interest of Yubi Treasure suddenly increases, it indicates that the user's asset leverage ratio has risen, and the holding cost has increased, which generally leads to a more volatile market.
That's right, MicroStrategy is also leveraging by issuing convertible bonds to buy BTC.
Another example is buying JLP from Jupiter, with a comprehensive APR of 50% in the past month, and Hyperliquid's HLP, which actually provides liquidity for leveraged traders while acting as the counterparty.
JLP can be understood as an ETF fund consisting of 44% SOL + 10% ETH + 11% BTC + the remaining USD, and this ETF will lend out the component coins.
When no one is borrowing, the price of JLP will sync with the component coins. When the coins are borrowed to users of Jupiter's contracts, the price of these coins is no longer related to JLP holders.
JLP's current scale has reached $1.2 billion (already hitting the current limit), while SOL utilization has reached a terrifying 94.84%, and BTC utilization is also high at 85.47%. So unfortunately, most of the recent earnings for JLP holders come from lending interest, essentially missing out on the market's upward movement, of course, the impact of a decline is correspondingly smaller.
For example, when SOL in the JLP pool is lent to a perp user to go long, if SOL rises, the trader takes away the profit portion and only needs to repay less SOL, thus maintaining the pool's dollar value unchanged; if it falls, the trader's lost SOL will enter the pool, and the SOL held by JLP increases, still maintaining the dollar value unchanged.
Conversely, if a user shorts SOL, it is equivalent to directly exchanging USD in the pool for fixed SOL. When closing the position, if SOL rises, the user incurs a loss, and when repaying, the amount of SOL remains unchanged, while the dollar value of the pool increases. If SOL falls, the amount of SOL remains unchanged upon repayment, and the dollar value decreases.
So in the end, we will tragically discover what this industry is composed of:
BTC is the leader in payment and store of value, and ETH is the leader in smart contracts. Smart contracts can actually be categorized into a few major types: DEX (exchanges), lending (opening leverage), NFT/SFT/pump (asset issuance).
Then there is SOL, which is dedicated to high-frequency trading meme casinos; SUI/APT and other DeFi chains, which are dedicated to leverage; and modular and various layer-2 solutions, which serve to repeat all of the above.
That's right, the most ironic thing right now is that these so-called infrastructures ultimately serve as casino tables, so why should these infrastructure projects look down on the cards on the table?
