Gate.ioBlogA Complete Guide to [Lending & Single-Asset Vault]
A Complete Guide to [Lending & Single-Asset Vault]
11 February 12:06
Now that blockchain technology is invading the finance industry, its influence has extended to monetary and financial services, capital market services, and more. In the past two years, the system of "digital currency lending" has revived the strong calls for "DeFi to replace traditional finance", and [Lending & Single-Asset Vault] has become a new choice for crypto users to manage their finances.
In economic activities, money as a trading medium carries [value], and money circulation is the process of [value transfer]. When money circulates, the value can be exchanged, that is, the value of money can be exchanged for the value of goods, so that the market can develop and operate healthily and for a long time.
Therefore, the circulation of money is very important in the market. [liquidity mining] is similar to the traditional central banks which regulates an encrypted exchange just like liquidity mining regulates liquidity on the blockchain. In essence, it is a token distribution mechanism. Users provide market liquidity for project tokens by depositing or lending designated tokens, so as to obtain benefits (project token reward or governance project rights). The specific value of benefits depends on the value of the project.
Lending & Single-Asset Vault is a Type of Liquidity Mining
[Lending & Single-Asset Vault] is a type of liquidity mining and a new token distribution mechanism. On Gate.io liquidity mining takes place when: users put idle assets into the capital pool (put into a project's token trading pairs, i.e. two kinds of tokens), indirectly becoming a market maker, earning the handling fee dividends obtained by the token trading pair in the capital pool and the automatic market making exchange.
In addition, Gate.io also issues additional token rewards to these users who provide liquidity for the fund pool.
The mechanism behind Lending & Single-Asset Vault is, users deposit idle assets into the fund pool (deposit a certain project token, i.e. a token), and the borrower borrows money according to their own needs. When repaying the principal, the user gets the loan interest paid by the borrower. The rate of return of Lending & Single-Asset Vault is calculated by the system according to the recent borrowing and lending of the corresponding fund pool. As of 15:00 on February 10, 2022, the highest rate of return of Gate.io Lending & Single-Asset Vault market was 149.70%.
Compared with liquidity mining, the most significant feature of Lending & Single-Asset Vault is that it helps to avoid the inevitable downside called [impermanent loss / non permanent loss] of liquidity mining.
Decentralized Lending & Single-Asset Vault and Centralized Lending & Single-Asset Vault
The engine that powers decentralized Lending & Single-Asset Vault operations is the smart contract, while that of centralized Lending & Single-Asset Vault operation is the encrypted exchange. Take Compound, a head service provider specialized in Lending & Single-Asset Vault, as an example. Compound is a smart contract deployed on Ethereum, which aims to provide mortgage lending services for users in the encryption market, similar to the services provided by banks for users to deposit and borrow.
Users can deposit their digital assets into the corresponding fund pool for interest collection, or mortgage digital assets for borrowing.
In June 2020, Compound officially launched the "Lending & Single-Asset Vault" mode and issued its COMP token. As of the time of writing, the total value of tokens locked on the Compound platform was US $753 million, and the real-time price of COMP was US $142.31.
Total Value of Locked Tokens on DEFI PULSE上Compound Platform
Borrowing and lending on the Compound platform means that COMP tokens need to be held. However, Compound's Lending & Single-Asset Vault model has attracted many groups with no real borrowing demand. They participate in Compound's Lending & Single-Asset Vault, which is more intended to stir up COMP prices, and the risk is self-evident.
Compared with decentralized Lending & Single-Asset Vault, Gate.io Lending & Single-Asset Vault is safe, convenient and profitable. For users who don't use Gate.io, the process of directly participating in decentralized Lending & Single-Asset Vault is cumbersome; they need to learn how to manage wallets and keys. while paying high gas costs, and always being vigilant against loopholes in smart contract code and worrying about the risk of project failure and bankruptcy.
How to participate in Gate.io Lending & Single-Asset Vault
We have prepared a detailed guide and intro just for you. You can click to read.
Author: Gate.io Observer: Jill Ma
* This article represents the views of the observers and does not constitute any investment suggestions.
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