Angular Finance: the cross-chain money market powering leverage for interoperable DeFi
Angular Finance — a cross-chain money market built as a secondary pallet on Picasso, allows DeFi developers and end-users to create isolated lending pairs consisting of any asset, similar to how anyone can create an AMM pair. As a substrate-native primitive built on Picasso, Angular allows developers to easily build customizable leverage protocols where anyone can create permissionless lending pools for unique or niched assets on Substrate-native DotSama chains, EVM chains, and Cosmos-based protocols as facilitated by Composable Finance’s tech stack.
Angular’s mission is to increase new yield streams for DeFi users through its cross-chain money market functionality. Users can margin short or long assets in similar pool-based protocols, including derivatives (perpetual contracts, crypto options and futures), interest-bearing tokens, and LP tokens by offering leverage-as-a-service. Hence, this opens up new growth opportunities for the DeFi sector, where demand to leverage assets has been on an upward trajectory.
Innovation in money markets is necessary for DeFi’s continued growth
Before the ‘DeFi Summer of 2020’, only $1.03 billion of value was locked in DeFi protocols (as of May 25). This number grew to $20.49 billion by (Dec. 31). Lending protocols like Compound, Aave, and MakerDAO with a collective TVL of nearly $10 billion at the time spearheaded the DeFi revolution through newer approaches like liquidity mining and today, almost $224 billion of value is locked in the DeFi ecosystem, of which Curve, MakerDAO, and Aave comprise over 22% of the market.
Despite the growth, the sector still experiences gaps, especially in terms of the utility of digital assets, which has become increasingly imperative as different instances of protocols are deployed on other chains and layers.
While lending protocols like Compound and Aave serve as primitives that developers can utilize to spin off other lending functionalities, the reality is that they provide limited choices in terms of assets to supply as collateral or borrow. Moreso, when the price of one asset drops faster than liquidators can react, each user and each asset on the lending platform is affected, as assets on existing lending protocols are priced based on the risk level of the riskiest asset i.e. risk level grows with every asset that is added to these primitives.
To mitigate these kinds of risks, projects offering lending services are breaking away from the norm and are trending towards isolated lending pairs. Projects such as Rari Capital’s Fuse, offer an open interest rate lending service. Fuse enables users to lend, borrow and create isolated lending markets with unlimited flexibility. While isolated lending protocols like Fuse offer powerful customizability, the risks still exist as can be seen from the oracle manipulation incident in one of Fuse’s isolated lending pools in early November last year. Angular flips it right on its head by serving as a risk-averse, cross-chain money market that will utilize risk-based asset tiers to protect lenders and borrowers alike. Angular will also provide users with greater control of collateral in situations that could put them at risk.
Cross-chain money market providing leverage-as-a-service for the improved utility of DeFi assets
To remedy the drawbacks of existing lending primitives and present more leverage options for developers and end-users utilizing these services, Angular was conceived as a cross-chain money market that allows function calls between chains connected to Composable’s liquidity-rich ecosystem. Angular provides users with the ability to create thousands of isolated lending pairs for any token and isolate risk to a single isolated lending pool. Thus, the level of risk a user is willing to take on to earn yield is tied to that user’s preferences rather than the entirety of the platform. Hence, the opportunities developers and end-users can spin off with their assets is only limited by the boundaries of their imagination.
As a cross-chain money market hub, Angular provides users with margin shorting and leverage opportunities for derivative instruments, interest-bearing assets, and LP tokens. Through its risk-limiting cross-chain lending primitive, Angular will also give the users the flexibility to hold back collateral from borrowers in situations like governance manipulation, short-selling opportunities, and trading risks.
Angular will utilize three risk-based asset tiers: isolation-tier assets, cross-tier assets, and collateral-tier assets. Isolation-tier assets are available for simple lending and borrowing and cannot be utilized as collateral to borrow other assets. Furthermore, they must be borrowed in isolation. Essentially, this means that they cannot be borrowed along with other assets using the same pool of collateral. For example, if a user has DAI and USDC as collateral and wants to borrow isolation-tier asset XYZ, the user can only borrow XYZ. If the user wants to borrow another token, ABC, the user can only do so using a separate account on Angular.
Cross-tier assets too are available for simple lending and borrowing and cannot be utilized as collateral to borrow other assets. That said, they can be borrowed along with other assets. For example, if a user has DAI and USDC as collateral and wants to borrow cross-tier assets XYZ and ABC, the user can do so from a single account on Angular.
Collateral-tier assets are available for simple lending, borrowing, and cross-borrowing and can be used as collateral. For example, a user can deposit DAI and USDC as collateral and use them to borrow collateral assets LINK and UNI from a single account on Angular.
Utilizing Picasso to offer cross-chain money market functionality
By utilizing Picasso’s primitives and tapping into Composable’s liquidity-rich ecosystem, Angular serves as a cross-chain money market for all ecosystems.
Angular serves as a vital primitive to Picasso as it can be malleably utilized with other primitives Substrate-native primitives like Apollo, Cubic, Mosaic, Centauri, and others. For instance, Angular will utilize Picasso’s vaults primitive, Cubic, for seamless liquidity transfers across vaults from a number of ecosystems, including Polkadot, Kusama, Ethereum, and Cosmos. As a vault pallet does not exist in the DotSama ecosystem at the moment, utilizing Cubic positions Angular uniquely, giving it access to aggregated funds, cross-chain abilities as well as the ability to perform additional functions such as yield farming.
As a cross-chain lending primitive, Angular requires accurate price feeds, especially for assets deployed on protocol instances on different chains. Angular will utilize the MEV-resistant oracle primitive, Apollo for this purpose.
As liquidity plays a vital role for asset collateralization on lending primitives, Angular will utilize Mosaic, Composable’s transfer availability layer and bridging infrastructure for seamless cross-chain communication with several EVM chains. This will enable DotSama protocols to tap into the liquidity-rich EVM ecosystems and drive TVL into their native protocols. Beyond Dotsama and EVM ecosystems, Angular’s reach and utility will imbibe cross-ecosystem communication between the DotSama and Cosmos ecosystems through Centauri, Picasso’s Substrate-IBC bridge
By providing leverage-as-a-service and utilizing Picasso’s primitives, Angular will allow users to tap into Composable’s liquidity-rich ecosystem and whitelist communication between the DotSama and Cosmos ecosystems and incorporate vital EVM chains as well. For example, users could deposit collateral such as a Kusama-native NFT on Angular and take out a loan on the ETH mainnet through Warp Finance. The possibilities are indeed endless.
Angular Finance is one of the many building blocks of the cross-chain, cross-layer future for DeFi that Composable Labs is currently building. Angular will provide risk-minimizing functionalities and great user flexibility, to open the doors to better utilize and leverage unique pairings and specialized tokens.
Given the growing importance of the DotSama space and Angular’s role as a unique cross-chain money market, Angular is positioned to provide a set of functionalities that will set it apart from other money markets, while serving as a primitive to allow DeFi projects that make use of leverage to build on.