Audio from the September 23, 2022 installment of “Polygon Alpha” with Boyan Barakov & Daigaro Cota - Co-founders of Fuji Protocol.
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Fuji Protocol
- Many protocol aggregators already exist on the subject of decentralized exchanges and yield optimization.
- However, practical lending-borrowing aggregators with a focus on minimizing cost for borrowers still do not exist.
- Fuji sets out on a mission to fix this.
- The idea of a lending-borrowing aggregator was born during ETHGlobal "MarketMake" hackathon in January 2021, where the founders met.
- Problems DeFi borrowers face today include:
1) High volatility - Variable rates change constantly due to market supply and demand. Users who choose to borrow from the cheapest provider today can find themselves paying a lot more interest just a few days after.
2) High management costs - Managing a debt position is time-consuming. It requires resources to monitor borrowing rates and to take appropriate actions based on market conditions. High gas fees increase transaction costs.
- Fuji DAO built the first borrowing aggregator. - It aims to optimize loan expenses for DeFi users.
- The protocol achieves this by constantly monitoring borrow markets and whenever there is a better rate, it automatically refinances the whole pool of debt.
- The advantages of Fuji compared to interacting directly with a base protocol are:
1) cost optimization - minimize the interest paid by borrowers
2) economics of scale - pooling funds together reduce the transactional costs by sharing fixed costs
3) time-saving - removal of constant attention users need to pay to find optimal rates
4) smooth UX - manage easily all debt positions from one place
- Fuji DAO creates vaults where users deposit a single asset as collateral and borrow against it another asset.
- For example, in the ETH/DAI vault, users deposit ETH and borrow DAI.
- Thus, isolating debt positions allows for better risk management and the most effective interest rate optimizations.
- When users borrow from a Fuji vault, the needed liquidity gets sourced directly from the base protocol proposing the best rate (Compound, Aave, dYdX, and more to come).
- The protocol keeps track of users' individual positions and assures the overall vault's health through a classical liquidation mechanism.
- To avoid liquidation, users need to maintain the proportion of their debt to the amount of collateral they provided above a certain threshold.
- When market conditions change and there's a provider with a lower borrow rate for a certain asset, the protocol triggers a rebalance operation and refinances the whole position of the vault.
- In that way, users instantaneously get a better rate on their loans without the need to take any action on their side.
Host: Justin Havins aka Crypto Texan
AV Engineer: Aaron Pettijohn
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Cross Chain DeFi Borrowing Aggregation | Fuji Protocol | Boyan & Daigaro | Polygon Alpha Podcast