© Reuters. DeFi and lending: How can lenders protect themselves from liquidation risk?
Crypto loans are an important part of the cryptocurrency market, similar to conventional lombard loans for the classic financial market. With a Total (EPA:) Value Locked (TVL) of more than $15 billion (as of October 2022), protocols like Maker and Compound are the best-known decentralized platforms for such loans. These protocols, just like their CeFi counterparts, work on the same principle: a borrower deposits one cryptoasset as collateral and borrows another cryptoasset against it. If the cryptoasset pledged as collateral drops dramatically in value, it will be foreclosed on liquidators and the proceeds used to repay the borrowed amount. The borrower has to pay a liquidation penalty.
This is not the case with zero-liquidation loans, known as ZLLs, which are putting a new spin on DeFi cryptocurrency lending. In contrast to existing credit solutions, borrowers are not exposed to any liquidation risk. One of the projects offering a DeFi protocol that allows crypto-backed lending without liquidation is MYSO Finance (MYSO stands for: Million Yield Structuring Opportunities). Launched as a hackathon project at ETHOnline in October 2021 and successfully completed with initial funding of $2.4M, MYSO is now developing the protocol as a no-settlement, fixed-rate, oracle-free lending solution.
Cointelegraph spoke in German with Aetienne Sardon, founder of MYSO Finance, about the ZLL concept and the benefits and risks that Protocol Zero can bring.
