All you need to know about Larix (LARIX)

Introduction

Currently, the lending protocol market has matured, with over 330+ lending protocols offering a wide variety of products. Ethereum, after a longer period of development, has established a strong foundation for product iteration and upgrades. Other public chains are still in their early stages. To rapidly develop their ecosystems, the quickest and safest approach is to directly replicate mature protocols from Ethereum and attract users through high liquidity mining rewards. As a result, there is little differentiation in lending products between Ethereum and other chains. The main competition for liquidity still occurs within Ethereum protocols. The leading lending protocols on Ethereum can secure funding in the billions of dollars, while the leading protocols on other chains lag far behind. Additionally, due to the “sucking effect” of leading lending protocols, when these Ethereum protocols enter other chains, funds quickly accumulate, leading to a significant market share reduction for native protocols on those chains.

Solana is currently one of the popular public chains that is gaining momentum. Within its ecosystem, the lending sector holds the second-largest position. Larix, a native lending protocol on Solana, has been under development for over two years. Since its launch, it has witnessed rapid growth in terms of product development, project collaboration, community size, and total value locked (TVL) within the first two months. This article will provide a detailed explanation of Larix’s product logic, economic model, and current development status.

What is Larix?

Larix is a lending protocol built on the Solana blockchain. It utilizes a pooled fund model and a dynamic interest rate mechanism to create a capital-efficient risk management pool that. The protocol also incorporates the LARIX token reward distribution model to balance borrowing and lending demand in the market and offers high mining rewards to increase liquidity.

Larix is the first lending protocol on Solana to undergo a security audit by SlowMist. It was officially launched on the Solana mainnet in September 2021 and introduced liquidity mining incentives shortly after. Larix has received support from various institutions, including Solana Capital, SolarEcoFund, Huobi Ventures, Distributed Capital, LD Capital, and Gate.

Source：https://projectlarix.com/

Interest Rate Model

Currently, the main model in the DeFi market is floating interest rate lending, where deposit and borrowing rates fluctuate based on user demand in the market. Larix follows a Dynamic Interest Rate Model that is consistent with the general lending protocols. The protocol introduces the Utilization parameter to control changes in the interest rate. Utilization refers to the ratio of the value of borrowed assets to the total value of assets deposited in the lending pool. The team sets a utilization threshold, known as the Kink Rate. When the utilization is below the threshold, the borrowing rate gradually increases as the demand for borrowing increases. On the other hand, when the utilization exceeds the threshold, the borrowing rate sharply rises to suppress the borrowing demand. Therefore, the interest rate model varies in different segments, with significant differences in slope.

Source：https://docs.projectlarix.com/interest-rate-model

The borrowing interest rate is determined based on the asset utilization rate in the current pool and a formula in the Larix interest rate model. The model includes five key parameter settings: Maximum Supply APY, Minimum Supply APY, Maximum Borrow APR, Minimum Borrow APR, and Utilization threshold (Kink Rate). These parameters impact the trend of the interest rate curve. The formula is as follows:

Source：https://docs.projectlarix.com/interest-rate-model

The optimal borrow APR refers to the interest rate that the protocol can offer when the utilization rate reaches the threshold. If the current utilization rate is below the threshold, both borrowing and lending rates will fluctuate steadily with changes in the utilization rate, which is favorable for users who provide deposits. If the current utilization rate is higher than the threshold, both borrowing and lending rates will increase rapidly with the increase in utilization rate, which is not favorable for borrowers but offers higher returns for depositors (fund suppliers).

In Larix’s interest rate model, the deposit rate is based on the Borrow APR and changes with the Kink Rate. Users who provide deposits can earn interest from borrowers, and the interest is split within the entire funding pool after deducting the commission fee.

On the Larix platform, there are no fees for borrowing, and users only need to pay the gas fees for using the Solana blockchain. However, when making deposits, users need to pay a commission fee rate of 20% in addition to the gas fees.

Liquidation Mechanism

When users withdraw a portion of collateral, increasing the account’s debt ratio or causing the price of the collateral token to drop and fluctuate, it may lead to account liquidation. Alternatively, when loan interest continues to increase or the value of borrowed assets keeps rising, it may also result in liquidation.

Account liquidation involves three roles: the Liquidation Initiator, the Liquidation Executor, and the Liquidated Account. The Liquidation Initiator submits a liquidation request to the Liquidation Executor, who then executes the liquidation of specific accounts. The Liquidation Initiator can be anyone, including a liquidation bot or other projects on Solana, and participating in liquidation can earn a reward of 8% of the total liquidated value, typically fluctuating between 6% and 10%. The Liquidation Executor is the Larix smart contract. When a liquidation occurs.

1. The Liquidation Executor first repays the loan for the liquidated account. Each time, only one type of asset can be liquidated, with a liquidation limit of 50% of the total borrowed amount for the selected token.
2. Next, the Liquidation Executor seizes the mortgaged assets from the user. Each time, only one type of asset can be seized.
3. Finally, the Liquidation Executor converts the seized assets, which are in the form of L-Tokens, back into the corresponding assets. This conversion function is automatically performed on the Larix platform’s frontend, eliminating the need for users to manually perform the conversion.

Source: https://docs.projectlarix.com/liquidation

Larix has a dedicated liquidation module on its official website, where all users can participate in liquidations and earn profits. The liquidator repays the loan, up to 50% of the borrowed amount, and takes the collateral from the account. They also receive 8% of the liquidated value as liquidation rewards. The interface displays the address and debt ratio of each liquidated account, as well as the maximum repayment amount that the current liquidator can make. Users can click on the corresponding address to participate in the liquidation.

Source: https://projectlarix.com/

Tokenomic Model

Larix’s native token, LARIX, has a fixed total supply of 10 billion tokens.

Token Distribution

The tokenomics for Larix were announced in July 2021. Of the total supply, 55% is allocated to the mining & reward pool reserve, 15% is allocated to investors, 10% is allocated to the team, 15% is allocated to Treasury & ecosystem development, and the remaining 5% is allocated to marketing and operations.

The tokens allocated to the team and investors have a four-year unlocking schedule. After a 12-month cliff period, 1/36 of the allocated amount can be unlocked on the first day of each month.

Liquidity Mining

There are 5.5 billion tokens allocated to the mining & reward pool reserve, accounting for 55% of the total supply. The team has set a five-year release period for these tokens, divided into three phases: (1) The first phase releases 20% of the total tokens, which are used to enhance the APY of lending; (2) The second phase releases 10% of the tokens; (3) The third phase releases 25% of the tokens. The tokens allocated in the second and third phases are intended for incentivizing future project development under the business plan of each phase, which has not been disclosed in detail yet. Additionally, there are no lock-up periods for the tokens in the three phases. The tokens are released on a daily basis, with the daily release amount being an average number that dynamically changes. The distribution of tokens between the lending and borrowing markets will be further detailed in the following section.

Token Distribution Rate Model

The protocol has designed a daily token distribution rate model for the LARIX token, where the rewards in LARIX tokens that users can earn in the lending and borrowing markets vary based on the asset utilization rate. This model sets the distribution speed and amount of tokens as fixed constants, with the asset utilization rate as the independent variable and the token distribution rate in the lending and borrowing markets as the dependent variables.

Source：https://docs.projectlarix.com/tokenomics/larix-token-distribution-rate-model

Current Status

Larix currently provides two main functions: depositing and borrowing. It allows users to earn interest on idle assets and also borrow other assets by collateralizing their assets. The product’s user interface is concise and intuitive, offering five functional modules: Dashboard, lending Launchpad, Positions, Market, and Liquidation. The lending Launchpad provides an independent asset pool for specific tokens, while the Positions module tracks and summarizes user account information. The Market module provides information on asset types and liquidity in the current market. The deposit and borrowing functions are primarily performed on the Dashboard page.

The Dashboard also features the Raydium LP Collateral Loan Compounding feature, which was launched in February 2022. When users deposit LP tokens from Raydium into Larix, Larix automatically reinvests the LP tokens back into Raydium. The RAY earnings obtained from Raydium are automatically reinvested every ten minutes to form new LP tokens, resulting in compounding returns. During the collateral borrowing process, users also receive additional LARIX mining rewards. The platform discloses the current deposit rates and liquidity of each trading pair, including LARIX mining rewards. Users can choose the desired trading pair to make a deposit.

Larix experienced rapid growth in its locked funds within the first two months after its launch, with a peak locked amount exceeding $360 million during the start of the mining rush. However, this growth trend did not continue, and the liquidity of the funds subsequently declined. Along with the downturn of Solana, Larix’s business data has not been particularly outstanding, with a total locked amount currently only around $3 million.

Source: https://defillama.com/protocol/larix

Currently, the Larix funding pool has a deposit amount of approximately $6.38 million and a borrowing amount of $2.72 million. The funding pool is not evenly distributed among different assets, and the utilization rates of each asset vary significantly.

Source: https://projectlarix.com/

Conclusion

Larix utilizes a Dynamic Interest Rate Model to establish an overcollateralized lending pool and devises a token allocation model for the lending market. To attract users, it offers high token mining rewards to increase the APY (Annual Percentage Yield). The project has garnered support from Solana and boasts a strong investment lineup. Within just two months of its launch, it has witnessed rapid development. However, the market performance was average due to low user stickiness, low user transfer costs, and Solana being at low expectations last year. The protocol’s future breakthrough points lie in product and mechanism innovation, as well as the team’s operational capabilities. Additionally, its future development will also depend on the growth of the underlying public chain, Solana.