DeltaPrime: Tapping into locked liquidity

The DeFi space has been one of the most talked-about topics in the cryptocurrency market. Lending holds a significant market share in the DeFi space, with a Total Value Locked (TVL) of $11.14 billion. Over-collateralization is a significant part of DeFi. Practically speaking, over-collateralization is a bane for the DeFi space, and it is one of the topmost shortcomings of the decentralized finance space.

Market volatility is one factor leading to over-collateralization in the DeFi space. Volatility also contributes to a high amount of risk for crypto investors. So, when does over-collateralization occur? The situation where the value of the borrower’s staked asset is more than that of the loan amount is known as over-collateralization.

The DeFi space will have to overcome the over-collateralization issue. It is hampering the DeFi space by locking liquidity in liquidity pools, and the pools are then forced to hoard millions of dollars.

DeltaPrime is looking to unlock this trapped liquidity. DeltraPrime is a lending and investing platform looking to increase capital efficiency. As a result, borrowers can borrow money without over-collateralizing their deposits. Lenders might not be the biggest fan of under-collateralization, but DeltaPrime has a secure way of under-collateralized lending.

Using DeltaPrime will lead to a much more significant portion of the liquidity pool being used. Lenders are no longer forced to compete with borrowers to provide money, which will lead to a higher APY for them, despite their money still being protected by liquidation bots.

Borrowing

Just like with Aave, in Deltaprime, borrowers must put down collateral. The difference is, with DeltaPrime, you can borrow up to 5 times your collateral. How is it possible? Well, in most lending projects, borrowed funds are sent to a personal wallet. In DeltaPrime, you can borrow five times the collateral value because borrowed funds are sent to a smart escrow contract. The borrower is the sole owner of this contract, and funds cannot be sent to your wallet. In essence, the funds are trapped because they can be liquidated, but now you have control over five times your collateral.

DeltaPrime works with their health meter and indicates how close your account is to insolvency. If your meter shows 100%, you have not borrowed any funds and are at no risk of liquidating your collateral. If your meter shows 2%, you are on the brink of liquidation.

Liquidations

While it does sound great that you can borrow five times your collateral, borrowers must still be careful of being liquidated. The way DeltaPrime liquidates accounts is different from Aave. Aave focuses on providing trustless loans, and they can do this by liquidating loans when the collateral ratio nears 100%. DeltaPrime provides trustless loans through partial liquidations if the collateral ratio drops below 20%. Part of the outstanding borrows will be repaid to increase the collateral ratio back to a healthy percentage.

Similarly to Aave, DeltaPrime works with liquidation bots. Anybody and everybody can run their own liquidation bot. Liquidation bots can perform partial liquidations up to a health of 25%. This way, borrowers do not lose everything due to a price spike, while depositors stay protected. There are cases where the loan is so tiny that no bot is incentivized. In this situation, protocol-owned liquidation bots will take over. This would mean the liquidation happens at a loss, but the insurance fund would cover this loss in the treasury.

Liquidation bots are a vital function of DeltaPrime's security. Because it is essential, they incentivize users to run their own bots on the platform.

DeltaPrime seems great for DeFi users, but it also incentivizes different projects. The selling point for other protocols is that, if integrated with DeltaPrime, it unlocks millions of liquidity that stick to them. Due to this, DeltaPrime has partnered with seven massive projects on Avalanche, such as Trader Joe, Yield Yak, Pangolin, BenQi and even GMX. Suppose DeltaPrime can unlock the millions of trapped liquidity and end up in Automated-Market-Makers. In that case, it will deepen the liquidity and lower swap fees for DeFi users in the ecosystem.

I think DeltaPrime might be one of the best places to perform insane degenerate DeFi strategies. I will be looking forward to their leveraged yield farming and being able to farm a project's token but with five times your collateral. Apart from being a degenerate on DeltaPrime, delta-neutral strategies can be performed. DeltaPrime is the place for innovating DeFi strategies; you can read about it here.

Conclusion

While DeltaPrime is looking to solve one of the most significant issues in DeFi, I would approach it cautiously. The macroeconomic conditions are not yet done. Also, even though DeltaPrime has performed 4 external code audits, the concept is entirely new, so there could still be hiccups. However, if their concept works, they could become of the most innovative projects in DeFi.