Venus Protocol is thrilled to have a tremendous list of launch partners for our release of Isolated Markets. Through a series of interviews, Venus Protocol invites you to learn more about each partner and the value our users bring to its community.
But what are Isolated Markets?
Isolated Markets open the door to creating isolated lending and borrowing pools with individual risk profiles and segregated risk for virtually any token on BNB Chain. This provides previously nonexistent use cases for these assets and plans to greatly expand the number of tokens available on Venus. Venus Protocol asserts that it will now safely provide the ability to lend and borrow to the long tail of crypto assets.
Venus would like to thank Ankr for partnering with us and taking the time to educate us all about their offering.
Ankr is a Web3 infrastructure providing a network of RPC nodes for developers on 20+ chains, as well as a pioneer in liquid staking since December 2020. Ankr also offers other developer tools such as advanced APIs, gaming SDK, and also enables any project to launch its AppChain on a Binance Application Sidechain (BAS).
Venus Protocol: Who is your target audience and how would you describe your typical user?
Ankr: Our target audience depends on our product lines.
For developers tools, our target audience is clearly developers, and more specifically, Web3 projects that enjoy low latency and enhanced reliability thanks to our distributed network of RPC nodes.
For liquid staking, our main audience are DeFi users, but also Web2 or Web3 integrators using liquid staking as an infrastructure to build on top and benefit from part of Ankr’s liquid staking fees.
Venus Protocol: In which category (Gaming, DeFI, Liquid Staking, Tron, etc) will your token reside, and what’s been happening in that space?
Ankr: Our BNB liquid staking token will reside in a Liquid Staking category.
Because BNB Liquid Staking is not instantly redeemable, it suffers from a higher liquidity risk than lending BNB on Venus, which can be redeemed any time under normal market conditions (unless if utilization rate of the pool is 100%). As a consequence, BNB lending rewards tend to be typically lower than BNB liquid staking rewards, and we can assume that the difference reflects the additional illiquidity risk of BNB liquid staking vs. lending.
Most of the time, BNB lending rewards are significantly lower than BNB liquid staking rewards (Lending APR is about 5x lower), and we believe that this difference does not fairly represent the liquidity risk associated with liquid staking, which is redeemable under 7 to 14 days depending on the liquid staking provider.
The goal of the liquid staking isolated pool is to trigger a convergence of BNB lending APR towards BNB Liquid Staking APR by indexing the latter to BNB borrowing APR.
We believe that the low BNB lending APR vs. BNB liquid staking APR is a problem and its source is related to the lending pool’s interest rate model that does not take into account external yield opportunities to its common lending pool such as BNB liquid staking.
Triggering a convergence of BNB lending APR towards BNB liquid staking APR requires adjusting the isolated lending pool interest pool might result in a higher liquidity risk in the lending pool when compared to the main lending pool if the lending pool’s optimal utilization rate is isolated lending is higher than on the common lending pool.
If the isolated lending pool is considered higher risk than the common lending pool, it is possible to lend on the common lending pool BNB and make sure that borrowed BNB in isolated lending results in a higher lending APR for BNB lenders on the isolated liquid staking lending pool.
The isolated liquid staking lending pool is also not exclusive to BNB liquid Staking. Ankr Bridge brought ETH and MATIC liquid staking to BNB chain and those assets can also be integrated into the same liquid staking isolated lending pool.
The main benefit for Venus for this liquid staking isolated lending pool is that it will:
- increase BNB borrowing demand,
- provide a natural incentive for BNB borrowers to borrow BNB by accepting BNB liquid staking as a collateral
- reduce the necessity of adding XVS farming rewards to stimulate BNB, ETH and MATIC borrowing
- enable the opportunity to earn higher lending interest for BNB lenders
- create more incentives for DEX to enable more capital-efficient liquid staking liquid pools on DEX that could lend BNB, ETH and MATIC instead of not generating recurring yield.
- allow risk segregation and expand yield opportunities without adding risk to Venus’ common lending pool.
Venus Protocol: Can you describe a use case for how your users will take advantage of Isolated Markets on Venus Protocol?
Ankr: We see two categories of users: DeFi users and integrators.
1.1 DeFi users will have access to liquid staking folding strategies enabled by an organic source of yield – liquid staking rewards. Users will be incentivized to collateralized BNB liquid staking and borrow BNB as long as the optimal utilization of the liquid staking isolated lending pool is not reached since the liquid staking APR is indexed in the interest rate model of the liquid staking isolated lending pool.
1.2 There are DeFi users concerned about the liquidity risk of liquid staking because it is not instantly redeemable. Lending to a liquid staking isolated lending pool is a very good alternative for such users that can benefit from a higher yield when compared to common lending pools and lower liquidity risk than liquid staking.
2. Integrators will have access to higher lending interest on BNB, ETH and MATIC without depending on additional farming rewards, which will make the isolated lending pool more attractive for BNB lenders than other lending pools.
Venus Protocol: What value can your users find in using Isolated Markets on Venus Protocol?
Ankr: The value for BNB borrowers in using Isolated Market on Venus is BNB liquidity to perform liquid staking leveraged strategies with a higher level of predictability than most other pools due to the indexation of liquid staking APR to the interest rate model of the isolated lending pool.
The value for BNB lenders is to access higher BNB rewards than other lending pools while benefiting from a lower liquidity risk than liquid staking.