The MELD protocol is building the core DeFi infrastructure on Cardano by offering a list of services at the heart of Decentralized Finance.
Users can lend their cryptocurrency within the MELDapp for others to borrow and earn an APY. You don't HAVE to borrow funds within the MELDapp. You can earn an APY just by depositing an asset and letting others borrow it.
The APY is dependent on asset utilization. The more people that borrow the asset, the higher the APY for lenders.
Borrowing crypto can only take place when you have deposited cryptocurrency to the MELDapp. Once deposited you will be able to borrow a certain value amount against your deposited asset (borrowing power). There is an interest rate attached to borrowing, depending on the utilization rate, that you will have to take into account while borrowing.
The amount you can borrow will differ depending on the asset. The more volatile, and less liquid the asset, the less borrowing power you will have. The less volatile, and more liquid an asset is, the higher the borrowing power.
If the loan-to-value (LTV) deposited reaches 85% you will be liquidated by the protocol.
*It's important to note here that a liquidation within the MELDapp does not mean that you will lose all of your funds. You will still have access to what you have borrowed, but not the initial collateral deposited.
When a user’s loan reaches a critical loan-to-value ratio called the liquidation point, it opens up to a public liquidation procedure. Liquidation occurs through a user paying down the loan of the CDP, which unlocks the collateral which is split between the liquidator, the liquidity provider and the protocol. The liquidation point will depend on the assets involved and the utilization rate.
Liquidation will be exclusively bot based, which means that users need to run a script that executes the liquidation for them, there will be no GUI in the MELDapp for it.
AMM with single-sided liquidity and impermanent loss protection. MELD vaults offer Automated Market Makers (AMM) with the possibility for a single-side exposure to an asset. Those pools will also have impermanent loss protection.
Also, the IL (impermanent loss) protection will be done by the protocol and funded by protocol participants (explained further in this document).
The function of the protocol insurance pool is twofold:
- Protect protocol lenders in case of cascading liquidation and in case some collateral is sold below the loan value.
- To compensate users in case of impermanent loss on the AMM protocol
To achieve that MELD token holders can stake their tokens in the Vaults. Those funds can then be used to compensate lenders and AMM LP providers. In order to compensate insurance pool participants for the added risk they are taking, MELD will distribute 40% of all fees collected on the protocol to them.
Users will have the option to stake their MELD tokens with or without duration. Users who stake with duration will receive a multiplier on their reward share, identical to the one described in the governance section of this document.
Regardless of stake duration, there is a 7-day cooldown period when users request to unstake. During the cooldown period, the MELD tokens are still available to the insurance pool. This is done to avoid “run on the bank” situations when an insured event occurs.