Introducing Angular Finance — Isolated Lending Pair Protocol built on Picasso
The intention of Picasso is to serve as a testing ground for teams to build with our primitives, and deliver a comprehensive DeFi ecosystem. In line with this effort, we are pleased to announce a project building on Picasso that is being developed by a team that is working in collaboration with Composable Labs, Angular Finance- an isolated lending pair pallet. Purposefully designed to isolate risk, this pallet is set to open new opportunities for use cases such as leverage on interest bearing assets, and serving as a lending protocol for leveraged trading, options, and derivatives.
The Benefits of Isolated Lending Pools:
The benefits of lending protocols like Compound and Aave are apparent, but how they are used for the broader DeFi ecosystem makes them core infrastructure. Building off of lending functionalities, developers can build more complex tools such as options and derivatives markets. The ability to leverage lending protocols to create these more sophisticated financial tools — which are readily available in centralized finance — is crucial to the broader adoption of DeFi and to better serve current users.
Recently, however, the concept of isolated lending protocols has become the latest innovation in the lending ecosystem. The benefit of isolated lending pools is their ability to isolate risk to a single pool, which is not always the priority of other lending protocols.
An isolated lending pair is effectively the pairing of one asset which is the collateral type, and another asset which is the lending asset. When users choose to lend in isolated lending pools, they are not taking on the risk of the entire protocol. Meaning, if a user contributes stablecoin to one pool, those stablecoins are lent out only to borrowers who are depositing the corresponding collateral associated with the lending pool. Thus, lenders can choose to take on only the level of risk in which they are comfortable. Risk-tolerant users can seek out higher risk-reward opportunities while risk-averse individuals can choose from more stable options.
An example of these risk-minimizing functionalities can be seen through Euler, a non-custodial protocol on Ethereum that allows users to lend and borrow in the isolated lending pair manner. When it comes to limiting risk, this protocol grants users the flexibility to withhold collateral from borrowers in certain situations which limits trading risks, short selling opportunities, and governance manipulation. Moreover, within the protocol, risk-based asset tiers exist to protect borrowers and lenders.
This proven concept of designed user flexibility to reduce risk is something the Angular Finance is focused on. Particularly as more complex applications and products come to Kusama, a solution like Angular would be beneficial to experimenting with leverage on these products. By concentrating on risk reduction measures, this pallet will be an ideal building block to become a cornerstone for more sophisticated applications.
How This Pallet Can Be Utilized:
As previously stated, the goal of Angular is to generate possibilities for developers leveraging this core component in their projects.
In general, lending pools have specific token pairings which allow users to deposit select tokens as a lender and receive select tokens as a borrower. While this functionality is all that is necessary to create basic protocols built around lending, there are countless tokens that are under utilized in this process. By creating a malleable isolated lending pool pallet, token pairs will only be limited by developers’ imaginations. This opens the door for unique pairings and the opportunity for DeFi users to better leverage their specialized tokens such as receipt tokens, tokens of up-and-coming protocols, and more.
Moreover, this isolated lending pool pallet is a demonstrated use case of Cubic, which will be setting the standard for vault infrastructure in Polkadot and Kusama. Building lending pools with our vault infrastructure demonstrates the lego-like building blocks Composable is hoping to foster through Picasso.
As projects begin leveraging Angular Finance, we are excited to see what further products will be launched on Picasso. As use cases and further developments occur, we will share them with our community.
If you are a developer with a project you think fits our ecosystem and goals, and you would like to participate in our interactive testing landscape at Composable Labs, reach out to me on Telegram at @brainjar.