Benchmark: What if your deposit rate could be traded? | Project introduction

When Uniswap’s first UNI liquidity mining was over, data showed that Uniswap’s liquidity pool lost 40% of locked positions.

But even so, Uniswap’s current lock-up volume is still 2 billion US dollars. If you look back at June this year, at that time The Uniswap lock-up volume is only 20 million US dollars. From June to November, the Uniswap lock-up volume increased 100 times. Even if the price increase in the bull market is excluded, 100 times is still enough to prove that the efficient and extensive user education brought about by this DeFi movement is successful enough.

After almost everyone has learned about decentralized applications such as lending, trading, and insurance, DeFi is the next step It is the market segment. Providing more and more trading tools for this market will be the next mainstream. Benchmark, an interest rate swap product, is one of them.

As we all know, currently Compound and other mainstream lending The borrowing rates on the platform are all floating rates, and each currency has its own interest rate curve on Compound. Taking USDT on Compound as an example, when the utilization rate is closer to 100%, the lending rate will be higher and higher.

Since the interest rate fluctuates, why can’t we use the lending rate in the lending market as the main target for trading to make a profit?

Three Tokens of Benchmark

Benchmark It is an interest swap product on the chain. Before looking at the specific project logic, let’s first understand the three tokens in the ecosystem.

XYT (Future Yield Token)

XYT represents future income. In Benchmark, it will not appear in the form of a single "XYT", but in the form of "XYT-corresponding asset-maturity date". For example, when you want to express "the income of the USDC certificate of deposit in Compound due on December 31, 2020", it is expressed as "XYT-cUSDC-31DEC2020" in Benchmark.

XYT is an ERC-20 token, but there are restrictions on fungible attributes, only the same asset type and Only XYT with the same expiry date can be fungible with each other.

OT (Ownership Token)

OT represents What is more important is ownership. When XYT is generated, OT is also generated. Similarly, in Benchmark, it will not appear in the form of a separate "OT". When expressing "ownership of XYT-cUSDC-31DEC2020", it will be "OT-cUSDC-31DEC2020".

OT can be used to redeem assets, and it is also an ERC-20 token. It also has fungible attribute restrictions, only the same asset type and the same maturity date OT can be fungible with each other.

BMK (Benchmark Token)

This is Benchmark's governance token, and the governance part is not yet clear.

Benchmark project logic

In fact, interest rate swaps have always existed in the traditional financial market, and they have already developed maturely. The most common is the swap between floating interest rates and fixed interest rates.

A company has a sum of money, the interest rate is floating between 2%-5%, A hopes that the interest rate can be fixed; B company There is a sum of money, the interest rate is fixed at 3%, but B wants the interest rate to be more than 3%, so A and B company agree with each other, under the same principal, the exchange rate, A gets a fixed rate, B gets a floating rate, Both parties are happy.

What Benchmark does is to swap fixed interest rates with floating interest rates.

We take the decentralized lending platform Compound as an example. When depositing in Compound, users will receive cToken. For example, when depositing DAI, users will receive cDAI and cToken can be understood as deposit certificates, which prove that users have deposits here.

cToken also has its own value, when users When you want to redeem your deposit, you need to return the cToken to the platform. At this time, users will find that they can redeem more assets than they deposited, such as depositing 10 DAI and redeeming 10.5 DAI, because there is a deposit interest rate , users can receive deposit interest.

In other words, as long as the deposit interest rate is not zero, the cToken in the user’s hand will appreciate in value, and the value increase is due to the additional interest. The deposit interest rate here is floating, and different utilization rates of deposits correspond to different interest rates. For example, the deposit interest rate of USDT fluctuates between 2% and 10% under a certain utilization rate.

So, cToken is intended to represent interest income over a period of time, but in fact, it is a floating rate product.

The Benchmark transaction is to swap the cToken with a floating interest rate with a fixed interest rate.

For example, A is optimistic about LINK, if you don’t play contracts, you can’t get leverage. Actually bought the spot. In order to earn as much profit as possible, he stored the currency on Compound, holding cLINK in his hand, and the interest rate was 5% when depositing.

After a period of time, A finds that the deposit interest rate has been below 5%, and the income is lower than expected. He would like to have a Fixed interest rate to guarantee your own profit now.

B got the news that there will be a large-scale DeFi liquidity mining project that can be mined with LINK. This news has not been made public yet, but common sense tells him that the demand for LINK will rise sharply, which will directly lead to an increase in interest rates. B finds that the current deposit interest rate is less than 5%, and the interest rate will definitely rise after the news is announced, even to 10%.

But he does not have LINK, he does not have so many assets, if someone can sell him the 5% interest rate up.

This is the Benchmark scenario.

A needs a fixed interest rate income, so A’s cLINK is put into Benchmark, and it will be swapped out after 2 months XYT and OT at maturity (it can be any maturity date), XYT represents 5% of the income in the next 2 months at this time, and OT represents the ownership of cLINK. In Benchmark, A trades XYT to B.

B has obtained the cLINK income right from now to the specified time. If the deposit interest rate rises smoothly in the future, the interest rate income will be It has entered B's pocket and has nothing to do with A, and A has obtained a fixed interest rate income that is more suitable for him. He only needs to wait until the maturity date to exchange cLINK with OT.

Of course, the transaction between the two parties is through AMM, and Benchmark’s AMM is almost the same as other AMMs. %, the only difference is that XYT with the same asset and the same maturity date can be placed in the same pool.

In this scenario, A actually divides his income into two parts in terms of time and space. Divided into 2 months and 2 months outside, the space is divided into fixed interest rate and floating interest rate. When XYT is sold to B, A will receive a fixed 5% interest rate within 2 months, while 2 months After that, A is still the income of floating interest rate.

What B gets is 2 months of XYT floating rate income, the focus is on capital efficiency, and B gets it without any deposit deposit interest.

Of course, Benchmark also has other scenarios. When the interest rate is high, XYT is minted and sold in exchange for high fixed interest rate income.

At present, interest rate swaps may not be a rigid demand, but the emergence of products such as Benchmark represents the development of the DeFi world mature trend. We may not use these financial tools, but their existence is necessary, just as the various products on the FTX trading platform are not suitable for all trading scenarios, leveraged tokens are suitable for unilateral market conditions, and options are suitable for hedging , ETF adapts to plate coverage and so on.

From the recent new DeFi such as BarnBridge and Horizon, the trend is that products are becoming more and more subdivided to suit different groups of people Financial products with risk tolerance will be the direction of DeFi for some time to come. These products may not get the huge traffic in DeFi currently, but they are the basic tools for the market to mature.

Official website:https://benchmark.finance/

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