Lending Platforms

Hello,

am I right that it is not possible for e. g. Aave to refinance itself on Compound if it’s utility is too high? I mean this wouldn’t work because Aave would need to overcollateralize it’s loan which would effectively worsen it’s utility. Is there a process how this can still be done in DeFi like in the banking system? Here, banks are constantly lending/borrowing to eachother…

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2 thoughts on “Lending Platforms”

  1. >am I right that it is not possible for e. g. Aave to refinance itself on Compound if it’s utility is too high?

    Yes. If the utilization is too high, borrow interest rates shoot up and some borrowers repay their loans.

    The overwhelming majority of DeFi lending is overcollateralized for safety reasons.

    AAVE’s latest version supports undercollateralized lending to whitelisted addresses – they use this to enable cross-chain bridges to move funds from one platform to another using AAVE, you can read more in their docs. I’m not sure if it’s actually being used.

    Another related feature of AAVE is collateral delegation or the ability to use collateral deposited by somebody else to borrow. Of course the organization that owns the collateral must allow you to use their collateral, kind of like ERC20 approvals.

    Both of the technologies above can be used to offset some of the high utilization borrows to another protocol but that’s terribly risky and I doubt it will happen any time soon.

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