Part II: The Road to Cream v2
We’ve been hard at work since our launch in August to become one of the most innovative platforms in DeFi. Our last post looked back at 2020, shared more info on our merger with Yearn, and explained our sharpened focus on our core lending protocol with the wind-down of CreamY Swap and Cream Swap.
We also teased the latest in milky CREAM v2 goodness — the Iron Bank, which will be the main focus of this post.
The foundation of CREAM v2 is the Iron Bank. If the DeFi ecosystem were Game of Thrones’ mythical Westeros, CREAM v2’s Iron Bank would be the king maker for other protocols.
The Iron Bank is CREAM’s paradigm-shifting protocol-to-protocol lending platform and liquidity backstop for the entire DeFi ecosystem. Existing money markets like Cream v1 are peer-to-peer. In traditional finance, the peer-to-peer lending market size is around $70 billion in loans outstanding. That is a pittance when compared to the size of all US corporate debt which at year end 2020, soared past $10 trillion.
We believe that DeFi will one day absorb all global financial markets. As protocols replace enterprises, the new face of corporate credit will be protocol-to-protocol lending, which could one day far oustrip DeFi peer-to-peer lending just as corporate lending markets far surpass peer-to-peer markets. This is why we launched the Iron Bank: we believe protocol-to-protocol lending will one day be a multi-trillion dollar market.
Consolidating cross-protocol liquidity will lead to even stronger composability in DeFi. The critical innovation at the heart of the Iron Bank is zero-collateral lending — protocol-to-protocol loans will use a credit system that is not currently possible with existing peer-to-peer lending solutions, all of which are overcollateralized. We believe that the capital efficiency made possible by protocol-level loans will accelerate our industry’s growth.
How it Works
Once a protocol has been whitelisted, and a credit limit set, it can begin to borrow funds from CREAM v2 directly. This is essentially the same function that determines whether a CREAM borrower who has posted collateral to CREAM has enough collateral to allow them to borrow more. Only now, the crucial difference is that protocols won’t have to waste their own liquidity in order to receive the funds that they need.
For now, we are focusing on the existing set of partners and are not open to additional reviews. CREAM will set credit limits on each whitelisted protocol to better manage risk.
The available pool of assets that protocols can borrow from CREAM v2 is currently limited to wETH, DAI, and y3Crv. You can find these and future CREAM v2 assets on Yearn Finance’s lending portal. We will also soon add USDT, USDC, sUSD, mUSD, DUSD, LINK, YFI, SNX, WBTC.
While CREAM v2 will remain limited to blue chip assets, new assets will continue to be listed on CREAM.Finance for collateralized peer-to-peer lending.
Our Current Partners
Yearn Vaults
As the much anticipated Yearn v2 is rolled out, strategists will be able to borrow assets from the Iron Bank. The Iron Bank will enable Yearn yVaults to develop leveraged yield-farming strategies and cross-asset strategies. Users will be able to deposit DAI and borrow an equivalent dollar amount of ETH via CREAM then enter SushiSwap liquidity pools utilizing Alpha Homora’s leveraged yield-farming product. Users will ultimately be able to obtain 90x leverage on stablecoins or 80x leverage on ETH to farm SUSHI, CRV, ALPHA. If the user uses Yearn yVaults they will also potentially be eligible to earn PICKLE.
Additionally, Yearn is launching an abstraction to leverage every yearn strategy via the Iron Bank.
Alpha Finance Lab’s Alpha Homora V2
2021 is already off to a massive start as last week, one of our first partners, Alpha Homora, announced that our teams have been working closely to bring the first undercollateralized protocol-to-protocol lending product.
This is the first time that a contract (Alpha Homora V2) can borrow from a lending protocol (CREAM V2) in an undercollateralized way. Alpha Homora V2 will borrow liquidity from CREAM V2 and offer that liquidity as leverage to its users. CREAM’s users will benefit from higher lending interest rates that accompany an increase in demand to borrow assets. In the meantime, both Alpha Homora and its users will benefit from deeper liquidity for leveraged yield farming.
How The Iron Bank Benefits CREAM Holders
The CREAM protocol reserve pool earns fees via the reserve factor as more borrowers enter the CREAM market to borrow. With fully collateralized loans, these fees are constrained by the amount of assets that are deposited in the protocol, the collateral factor, and the asset cap.
Allowing whitelisted borrowers to tap into CREAM’s liquidity will increase potential earnings for the protocol with more capital efficiency, leading to increased revenue for CREAM holders.
Looking Ahead
We’re very excited to continue to onboard strong DeFi protocols to the Iron Bank. We are in talks with a number of leading names in the industry to expand our offering.
In the meantime, we are currently upgrading our financial health monitoring capabilities and re-evaluating our token model.
Special Thanks
Special thanks to Andre Cronje, Sam Priestley, and Carlos Sessa from the Yearn core team for their insights and development in erecting the Iron Bank. Also, thanks to Tascha Punyaneramitdee and the rest of the Alpha Homora team for their support and partnership.