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Get zero-interest loans on Unbound Finance

Published

2 years ago

February 28, 2023

The introduction of Automatic market makers (AMM) quickly revolutionized the decentralized financial sector. Several of the biggest DEXs, including Uniswap, Curve, SushiSwap, and Balancer, contributed significantly to the DeFi liquidity on Ethereum and other blockchains. The democratization of liquidity provisioning was made possible by these systems, although capital efficiency mostly remained a problem. In solving this challenge, Unfound Finance has come into the scene with a new proposition. But what has Unfound finance founded?

An important DeFi prospect, identified by Unbound, is the possibility to leverage liquidity provider (LP) tokens. By securing their idle LP tokens, users could borrow interest-free cryptocurrency loans through the protocol’s lending structure. Unbound Finance jettisons the need for a liquidation engine by supporting LP tokens of stablecoin asset pairs and relying on SAFU reserves to protect user-deposited collateral during periods of high volatility.

Overview

Unbound Finance is a decentralized, cross-chain lending platform that allows DeFi users to borrow loans secured by “synthetic assets” with excessive collateral by pledging idle interest-bearing tokens (ib tokens) at a 0% interest rate. The tokens then continue to accrue transaction fees while being collateralized from liquidity provisioning to the underlying pool. The borrowed money can be used to lend, borrow, trade, or even buy more LP tokens to increase returns on the same investment.

The rewards generated from automated yield farming of the deposited assets can increase the users’ APY. The platform creates minted tokens of the UND stablecoin and offers liquidity to the AMM LP tokens. Once the borrowed UND token is returned, the protocol releases the collateralized assets. Unbound Finance is a project that permits the collateralization of Uniswap v3 positions, with the primary goal of developing a composable DeFi solution.

Key Features

Interest-free borrowing

Unbound Finance grants UND liquidity to users without taking interest on lent-out liquidity.

Liquidation free

Unbound Finance is void of a liquidation Engine. Hence, users are not predisposed to their collateral being liquidated.

Perpetual borrowing

On Unbound finance, there is no limit on how long loans can last. By offsetting the outstanding loan, users can always release the underlying collateral.

Stablecoin UND

The Unbound protocol’s UND is its first main token. As the protocol’s native token, it is a decentralized, cross-chain stablecoin that was created specifically for the AMM market.

Factory Smart Contracts

Unbound supports EVM-based AMMs like Uniswap, Balancer, Mooniswap, DFYN, SushiSwap, etc. It leverages Liquidity Lock contracts that are designed to be permissionless. According to the whitepaper, the protocol will soon support non-EVM-based AMMs.

Collateralizing concentrated liquidity positions

Unbound supports the use of concentrated liquidity positions as security for borrowing synthetic crypto assets like the UND stablecoin.

Minting cross-chain synthetic assets

Oracles and native bridges are utilized by Unbound Finance to carry out cross-chain transfers of UND and other synthetic assets.

Secured Price Oracles

Unbound lowers reliance on a single price oracle by using Uniswap’s TWAP and Chainlink to obtain a highly secure price feed, protecting the platform against flash assaults.

Core Features

Borrowing

By putting up their LP tokens as collateral, users of Unbound can borrow interest-free cryptocurrency loans. The native stablecoin of the protocol, UND, will be used to issue loans. Unified Digital Token (UND) stands for a decentralized stablecoin pegged to the US dollar.

Unbound Vaults

By using LP tokens from pairings of volatile asset classes and stablecoin LP tokens as collateral, the latest version of Unbound enables users to borrow UND. The protocol also supports the use of concentrated liquidity positions as collateral. By placing LP tokens or ERC-20 tokenization of concentrated liquidity holdings in particular pools in one or more vaults on the Unbound platform, users can borrow UND. A user may only borrow as much UND as their borrowing capacity will allow. The underlying reserve assets are protected from collateral liquidation at any moment by a user borrowing a loan with a value that is less than, equal to, or more than the borrowing capacity.

Borrowing Fee

On the loan given to the user, Unbound does not incur any interest. Nevertheless, the protocol levies a one-time borrowing fee on the sum of UND taken against the collateralized assets. Every time UND is borrowed, the fee is charged and added to the borrower’s debt. The user is required to pay the total amount borrowed in UND along with the borrowing fee to unlock the underlying liquidity supporting the loan.

The borrowing fee will continue to fluctuate to support UND’s maintenance of its dollar peg and serve to stabilize the Unbound ecosystem. This fee ranges from a minimum of 0.5% to a maximum of 5%. The borrowing fee is determined by a formula that takes into account the base rate, the borrowed debt’s value in UND, and borrowing costs. The formula is:

Borrowing fee = (baseRate + 0.5%) * UNDDebt.

Unlocking

Loans on Unbound Finance are perpetual, therefore users’ UND loans do not have to be repaid by a specific date. Users may remove their collateralized assets at any time, without restriction, by paying off their outstanding debt in full or in part, as well as the borrowing cost.

The collateralization ratio (CR), which is recalculated at each instance by the Unbound smart contract using price data from the price oracles, is used to determine how much collateral will be freed. The borrower has so returned the UND, which is removed from circulation and burnt as part of the unlocking procedure.

Yield Farming

Unbound automatically stakes the collateralized assets into secure and profitable yield farming pools to maximize the reward from users’ investments. Incentives produced in this manner will be dispersed proportionally to each borrower.

The tokens will become unstaked from the farming contract once the user unlocks liquidity from the platform to withdraw the collateralized assets, and the protocol’s smart contracts will automatically claim and transfer the profits accrued thereon to the user’s wallet.

Earn

By adding liquidity to the UND pools across several DEXs via the Unbound protocol, UND holders can enjoy extra benefits. Users can collateralize their LP tokens on Unbound to borrow further UND or stake the tokens they get thereafter into the supported farming pools to increase their APY. For the users, a compounded yield will be obtained by repeating the procedure numerous times.

Price Stability

Liquidation

Unbound utilizes the strategy of over-collateralized loans to protect the protocol from excessive market volatility. This indicates that the value of the collateral for the debt should always be larger than the value of the borrowed UND. Loan positions may be liquidated if the user’s debt position’s collateral ratio drops below the linked Unbound vault’s Minimum Collateralization Ratio (MCR). This could take place if the value of the underlying collateral used to secure the loan declines.

Redemption

Unbound uses redemption as a price stability mechanism to preserve the UND token’s value in relation to the US dollar, a fiat currency to which it is connected. The protocol enables users to take advantage of the arbitrage opportunities that arise due to the discrepancy between the market price and UND’s peg value.

In situations when the price of UND in USD falls below parity, consumers can purchase UND on the open market at a lesser price and exchange it for the underlying reserve asset at par. The procedure results in the burning of UND that was returned, which reduces supply and causes the token’s price to approach its target ($1) result.

Redemption Fee

By trading UND at face value, the redeemer can recover a certain amount of collateral, and the protocol levies a redemption fee on that amount. The formula that calculates the redemption fee is Redemption Fee = (base rate + 0.5%)* CollateralDrawn

Tokenomics

A dual token ecosystem exists within the Unbound protocol $UNB and $UND. UNB is used as a governance token, and UND is used as a stablecoin.

UND – The Decentralized Stablecoin

The Unbound platform’s native stablecoin, UND, is distributed to users as a loan secured through their collateral. It is a cross-chain, decentralized ERC-20 stablecoin that is pegged to the US dollar. User-provided collateral is used to back UND. The quantity of UND that the user will borrow will depend on the current value of the reserve asset that they have locked and the MCR of the accompanying Unbound vault. Before returning the underlying collateral to the user, the borrowed UND will be burnt once it has been put in the Unlock contract.

‌UNB – The Unbound Governance Token

The UNB token serves as the protocol’s governance token. Token holders have voting rights, and the token itself facilitates participation in decision-making. Holders of tokens will be able to cast votes for or against proposals for implementations and improvements that would improve the protocol’s effectiveness and serve the community.

The following are only a few of the roles that UNB holders may be expected to perform:

Cast their vote for the asset pairs they want to use as collateral,
Calculate the borrowing rate and Minimum Collateralization Ratio (MCR) for the asset pairs on the whitelist,
Change the variables that affect the borrowing rate and redemption cost,
change the MCR for the collateral asset classes already in existence,
Change the interest rate for each category of the collateral asset,
Find out how much money each vault can borrow globally.

In terms of distribution and allocation, from the total supply of 10 billion UNB tokens, 30% goes to the reserve, 25% goes to the team, 30% is for sale and the final 15% is to the foundation.

Partners and Investors

Unbound Finance has a truckload of investors and partners. Some of the partners are Kucoin, Bitbns, Pantera Capital, Fintech Collective, TRGC, LD Capital, and Gate.io. Among their investors is the co-founder of Polygon Sandeep Nailwal, Co-founder of Gnosis Stefan George, founder of wikiHow Jack Herrick, co-founder of Harmony Sahil Dewan, and a host of others.

Closing Thoughts

Unbound Finance is a cutting-edge, non-custodial lending platform that is motivated to open up more, better-yielding alternatives in order to increase the total capital efficiency of the DeFi ecosystem. Unbound’s goal is to enable the simple transit of this liquidity from one chain to another without actually eliminating it by unlocking the liquidity present in DeFi DEXs through synthetic assets like the UND stablecoin.