The borrowing markets in DeFi are still maturing, and the infrastructure that will make the market liquid and fluid is still being built. At Fuji DAO we want to be part of this building process and our ultimate long-term goal is that borrowing in DeFi is accessible to more and more users.
Many protocol aggregators already exist on the subject of decentralized exchanges and yield optimization. However, practical lending-borrowing aggregators with a focus on minimizing cost for borrowers still do not exist. Fuji sets out on a mission to fix this. The idea of a lending-borrowing aggregator was born during the ETHGlobal "MarketMake" hackathon in January 2021. This is where the founders met.
- 1.High volatilityVariable rates change constantly due to market supply and demand. Users who choose to borrow from the cheapest provider today can find themselves paying a lot more interest just a few days later.
- 2.High management costsManaging a debt position is time-consuming. It requires resources to monitor borrowing rates and to take appropriate actions based on market conditions. High gas fees increase transaction costs.
Fuji DAO built the first borrowing aggregator. It aims to optimize loan expenses for DeFi users. The protocol achieves this by constantly monitoring borrow markets and whenever there is a better rate, it automatically refinances the whole pool of debt.
The advantages of Fuji compared to interacting directly with a base protocol are:
- cost optimization - minimize the interest paid by borrowers
- economics of scale - pooling funds together reduce the transactional costs by sharing fixed costs
- time-saving - removal of constant attention users need to pay to find optimal rates
- smooth UX - manage easily all debt positions from one place
Fuji DAO creates vaults where users deposit a single asset as collateral and borrow against it another asset. For example, in the ETH/DAI vault, users deposit ETH and borrow DAI. Thus, isolating debt positions allows for better risk management and the most effective interest rate optimizations.
When users borrow from a Fuji vault, the needed liquidity gets sourced directly from the base protocol proposing the best rate (Compound, Aave, dYdX, and more to come).
The protocol keeps track of users' individual positions and assures the overall vault's health through a classic liquidation mechanism. To avoid liquidation, users need to maintain the proportion of their debt to the amount of collateral they provided above a certain threshold.
When market conditions change and there's a provider with a lower borrow rate for a certain asset, the protocol triggers a rebalance operation and refinances the whole position of the vault. In that way, users instantaneously get a better rate on their loans without the need to take any action on their side.