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Hashstack´s Open Protocol Finally Brings Under Collateralized Loans To DeFi, Testnet Is Live Now

Written by: Mustafa Mulla

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Mustafa Mulla

Mustafa has been writing about Blockchain and crypto since many years. He has previous trading experience and has been working in the Fintech industry since 2017.

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Feb 8, 2022

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When people think of lending, it often involves a specific amount of funds to be used as collateral. For some reason, that amount is often far more considerable than the actual loan in decentralized finance.

However, the testnet release of Hashstack’s Open Protocol shows things can be done differently, appealing to millions of potential users. 

A Necessary Change For DeFi Lending

Decentralized lending is one of the most prominent categories in DeFi today. The appeal of obtaining liquidity instantly by interfacing with smart contracts is significant.

Moreover, users are eager to leverage their crypto assets to provide liquidity and earn interest payments. It is a straightforward concept, yet one that has a steep caveat in the current implementation. 

Despite representing a $48 billion industry, according to DeFiLlama, the current lending protocols leave much to be desired. Almost all of these protocols provide substantial liquidity, yet they also maintain steep collateralization requirements.

For example, it makes little sense for someone to offer $1,500 in collateral to borrow $1,000. Moreover, while the volatile nature of crypto assets warrants higher collateralization levels, they also make accessing these loans much harder than necessary.

In some cases, users will need to provide collateral of up to 300% of the loan’s value. It is an unsustainable approach to decentralizing lending, as accessing money through a bank is cheaper, even if monthly payments might be a bit higher.

Instead, the industry needs undercollateralized loans, a concept that is only now becoming more accessible.  

The testnet launch of Open Protocol by the Hashstack Finance team confirms this approach is viable. Using a lower collateralization ratio makes loans more accessible and can foster overall DeFi growth.

Moreover, this approach can bring users into the cryptocurrency fold, whereas existing DeFi lending protocols mainly cater to those who already own crypto assets.

Hashstack’s Open Protocol Is Powerful

The numbers do not lie when it comes to valuing undercollateralized loans. Hashstack has put together the Open Protocol to make everything as streamlined and appealing as possible.

Using a 1:3 collateral-to-loan ratio means users can borrow much more money than they need to have the capital for. Moreover, up t 70% of the initial collateral can be withdrawn, whereas the remainder of the collateral + borrowed funds serve as in-platform trading capital.

Moreover, users will achieve 4.28x more loan on their collateral than popular DeFi lending platforms like Aave, MakerDAo, and Compound.

It is a very steep difference, yet under collateralization is necessary for DeFi. Additionally, the Open protocol supports four primary markets – BTC, BNB, USDC, USDT, and HASH – with custom deposit plans tailored to the needs of individual users. 

Hashstack Finance founder Vinay states:

Today, if you want to borrow $100 on Compound, or Aave, or even MakerDAO, you are required to provide collateral of at least $142. This breaks the primary intent behind loan procurement, and has restrictive use-cases for the borrower. In comparison, through Hashstack’s Open protocol you would be able to borrow the same $100 with collateral as little as $33.33. This 4.25x value-add against everay established market player today is a remarkable milestone for the defi ecosystem in general, and will drive further adoption.”

Depositors can earn up to 24% APY, which is rather appealing. On the other hand, Borrowers can make leveraged investments in IDOs or swap borrowed assets to other coins through native Pancakeswap integration.

In addition, they will earn 10% fixed APY against their fixed loan collaterals. 

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Mustafa Mulla

Mustafa has been writing about Blockchain and crypto since many years. He has previous trading experience and has been working in the Fintech industry since 2017.

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