The Mechanisms Behind MELD's Innovative DeFi Solution
MELD, a non-custodial, decentralized lending and borrowing protocol, forms a unique liquidity market that seamlessly operates across multiple blockchains. Governed by the MELD token, this market offers users the flexibility to supply crypto and borrow crypto or fiat currencies in a transparent and secure ecosystem. The platform provides a dynamic balance between suppliers and borrowers, maintaining a stable environment while offering competitive yields.
At the core of MELD's lending and borrowing services are the MELD Vaults, community-managed liquidity pools that hold a single asset per vault. These Vaults not only facilitate lending and borrowing but also generate yields, contributing to the ecosystem's overall health. In parallel, MELD bridges the gap to traditional finance through MELD.FI Neobank – providing users with an avenue to fiat loans and an integrated banking experience.
Accessible through the MELDapp on the web, mobile, and API, MELD ensures users can engage with its services with ease and convenience. MELD's forward-thinking approach to DeFi, characterized by its cross-chain lending, borrowing, and integrated fiat banking services, positions it at the forefront of the decentralized finance evolution.
In the supplying phase, users provide assets to a specific MELD Vault denominated in that asset (such as wBTC or ADA), receiving a yield based on two factors; the asset's utilization for being borrowing (based on supply and demand), the more the asset is borrowed the higher the yield for the supplier. Secondarily, specific to the token, unutilized assets are deployed to generate a yield rather than sitting in the Vault doing nothing. This creates a floor yield unique to the MELD protocol and makes the MELD Vaults much more capital efficient. By supplying an asset, users essentially become the backbone of the MELD ecosystem, providing the liquidity that enables other users to borrow funds and generate yield across the ecosystem. When a user supplies to the MELD Vault they are rewarded for being a liquidity provider across the crypto space. This not only ensures the stability of the system but also allows suppliers to earn attractive yields on their assets.
An important note, users do not have to borrow anything in order to get a yield from supplying.
Once you have supplied assets to a Vault they will immediately begin to accrue a yield, yields are paid out based on the type of asset, for example, ADA yields every five days while ETH yields every minute. Users can withdraw their assets at any time, there is no lockup period for supplied assets.
Borrowing follows the Supplying phase. Users can borrow a certain percentage of the value of the collateral they've deposited, depending on the asset's risk score. The flexibility of MELD’s borrowing mechanism allows users to pay off their loans at their convenience, provided they manage their debt positions appropriately. This ensures that the borrowing experience is both user-friendly and financially prudent.
Borrowers do not pay back their loan in a traditional time-based manner, instead, the interest will be added to the amount borrowed and will increase at a time interval based on the specific asset, for example, ADA yields every five days while ETH yields every minute. Users can choose to pay down the debt at their discretion.
Liquidating is a critical process in the MELD ecosystem. If a loan's collateral-to-debt ratio nears a ratio specified by the MELD risk model, the loan is marked for liquidation. Then, any user termed a 'liquidator', can repay the loan and receive the collateral. The liquidator will repay the outstanding loan amount, and in return, receive the collateral (worth more than the loan) used to originate the loan from the MELD Vaults. This process protects the system from potential defaults and helps maintain the overall health of the protocol.
Depending on the asset a liquidator can earn from 5% to 15% per liquidation, providing a financial incentive to keep the MELD protocol operating efficiently. Liquidators will execute liquidations via a bot. MELD provides an open-source basic liquidation bot for the protocol users can customize as needed.
The MELD Vaults are essentially liquidity pool infrastructures that users supply and borrow from. These vaults accommodate different assets across multiple blockchains, making the MELD platform interoperable and versatile. By virtue of hosting a variety of assets, MELD Vaults provide an avenue for users to maximize their yield opportunities.
The MELD Vault also facilitates the deployment of unutilized assets into a specified yielding instrument. This is a unique mechanic to MELD and gives the MELD Vaults a higher floor yield than other lending and borrowing protocols.
MELD Vaults are the core piece of MELD technology and will be used across more MELD protocols in the future.
MELDapp WEB, MOBILE & API
The MELD Web, Mobile, and API serve as portals to these financial services. Through these platforms, users can easily supply, borrow, and liquidate their assets. This multifaceted accessibility ensures that users can engage with MELD’s services, whether they are at home or on the move, providing an all-encompassing financial solution that meets the dynamic needs of modern users.
The MELD Neobank plays a vital role in bridging traditional finance and decentralized finance within the MELD ecosystem. Operating under regulatory standards, it provides secure handling of fiat currencies and reliable financial services to users. It offers a seamless transition between crypto and fiat assets, thereby enhancing the MELD protocol's functionality. Users can maintain a MELD Finance deposit account independent of the crypto protocol or MELDapp, offering flexibility and access to a wider financial market. The MELD Neobank represents MELD's innovative approach to creating an accessible and efficient financial platform.