Decentralized Lending
What is decentralized lending
Decentralized lending refers to a system where borrowing and lending activities are facilitated through a decentralized platform, typically based on blockchain technology. Unlike traditional lending that involves banks or financial institutions acting as intermediaries, decentralized lending utilizes smart contracts on blockchain networks. This means transactions are executed automatically when certain conditions are met, without the need for a central authority.
How does Tulia differ from traditional lending
Tulia stands out in the decentralized lending space by offering a unique blend of traditional and innovative lending models on a single DeFi platform. Unlike traditional lending platforms that rely on a one-size-fits-all approach with fixed interest rates, Tulia introduces a dual-system approach:
Conventional Lending : This component mirrors traditional lending practices by providing loans with fixed interest rates from a communal pool. Borrowers access funds from a single pool, similar to how banks pool deposits to lend out, emphasizing stability and predictability in loan terms.
Open Market Protocol: The innovative highlight of Tulia is its open market protocol, which allows for customization of interest rates and repayment schedules. This feature empowers both lenders and borrowers to negotiate terms directly, offering flexibility and potentially more favorable conditions for both parties. This system democratizes the lending process, moving away from the rigidity of traditional platforms.
How you win at Tulia
Winning at Tulia involves strategic lending and holding practices. If you anticipate a rise in a specific coin's value but want to seize another opportunity, lend out the latter coin while using your valuable coin as collateral. This way, you maintain ownership of the potentially appreciating asset while engaging in another lucrative opportunity, creating a dual advantage scenario.
For instance, imagine you hold Ethereum ($ETH) and expect its value to increase but simultaneously want to invest in $USDT due to its growing potential. Through Tulia, you borrow $USDT while using $ETH as collateral. This strategy enables you to potentially benefit from the increase in $ETH's value while also capitalizing on the investment opportunity in $ARB, thus leveraging the best of both worlds.
The Basics of Tulia
Open Market Protocol
Customize your interest rate and payment days
Lend and earn interest
Borrow with Flexibility, choose from various lending requests that match your desired interest rate and repayment schedule.
Conventional Lending
Lend and earn fixed interest rates
Borrow tokens and pay borrowing interest
Important parameters
There are a few parameters that are important in the context of lending:
Max LTV (Loan to Value): This is the maximum ratio of the loan amount to the value of the collateral. For instance, a max LTV of 80% means you can borrow up to 80% of your collateral's value. If your collateral is worth $100, you can borrow up to $80.
Liquidation Threshold: This is the value at which your loan becomes undercollateralized and is at risk of liquidation. For instance, if the threshold is set at 82.50%, and the value of your collateral falls to this percentage of your loan amount, the collateral can be sold off by the protocol to pay back part of the loan.
Liquidation Penalty: If your loan is liquidated due to falling below the liquidation threshold, this penalty is added to your debt as an extra cost. Tulia applied a 5% liquidation fee, meaning that if you're liquidated, you'll pay an additional 5% of the loan value.
Utilization Rate: This is the percentage of funds that are currently being borrowed compared to the total funds available for borrowing. A utilization rate of 27.20% means that out of all the funds available to be lent out, 27.20% are currently taken by borrowers. This rate can affect the interest rates charged on the loans – generally, the higher the utilization rate, the higher the interest rates, as the demand for the funds is higher relative to the supply.
Health Factor: This is an indicator of the safety of your loan relative to your collateral. A health factor above 1 means you are not at immediate risk of liquidation. If the health factor falls below 1, it means the loan is undercollateralized and may be liquidated.
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