Unlike other DeFi platforms, ELYFI has two assets with different characteristics: real assets and cryptoassets deposited in the Money Pool. Participants can borrow cryptoassets using the given assets as collateral.
When cryptoassets are loaned as collateral, this supplies liquidity to the Money Pool because cryptoassets used as collateral are provided to the Money Pool. However, when taking out loans against real assets, the assets deposited in the Money Pool cannot play a role in liquidity. This is because ABTokens deposited as collateral have the characteristics of non-fungible tokens. In other words, real asset-backed loans can cause a lack of liquidity for ELYFI.
The liquidity of the Money Pool is very important in its operation. As loan creation and repayment processes may not happen smoothly if there is lack of liquidity, it is a key operational indicator. Therefore, if excessive real asset-backed loans are created, ELYFI cannot operate smoothly.
To prevent this problem from occurring, the non-fungible ABTokens deposited are securitized and purchased. Investors can invest in ATokens for securitization of ABTokens deposited in the Pool and receive fixed interest income. When investors invest in ATokens, cryptoassets are used to supply Money Pool liquidity. In this case, investors can manage their funds systematically as they plan, just like in traditional financial markets, through fixed interest rates from the asset (bonds).
Even if the liquidity of the Money Pool can be ensured through securitization of asset-backed bonds, the moment collateral-based loans occur, a temporary liquidity shock is applied to the Money Pool until all asset-backed bonds are securitized. This liquidity shock increases the variable interest rates for borrowers, causing them not borrow cryptocurrencies by depositing their own cryptoassets from ELYFI.
Therefore, the following conditions are necessary in order to minimize the liquidity shock and ensure stable real asset-backed loans in ELYFI.
- Sufficient liquidity must be secured in ELYFI in order to mitigate the liquidity shock caused by real asset-backed loans.
- An optimal interest rate model that can ensure the stability of the Money Pool by securing enough data should be created.
To this end, interest rates for real asset-backed loans are set higher than that of crypto asset-backed loans, while various variables are set to keep the ratio of real asset-backed loans low. When there sufficient liquidity accumulates in the Money Pool over time and there is enough data to develop a new interest rate model, that model should be modified with appropriate variables by the Governance.