Special thanks to Kirby Ong for the guest post!
Maker – the leading DeFi lending protocol behind Dai – has a new competior, Lien Protocol. Lien will be conducting an Initial FairSwap Listing for LIEN on 7th September at 13:00 UTC using an iDOL/LIEN trading pair in lieu of its mainnet launch this past week.
Lien Apps Go Live! 🚀
We just released the Lien app on Ethereum mainnet.🎆
You can start creating Options and Stablecoins from ETH now!
Be mindful of high gas cost!💸
App: https://t.co/zyVsk7cNhWRead about the details of the release in this article.https://t.co/nshYImutIh
— Lien (@LienFinance) September 4, 2020
What is Lien Protocol?
Lien Protocol is a decentralized, governance-less, censorship-resistant protocol for creating options and stablecoins with ETH.
With Lien Protocol, users can mint a crypto-backed stablecoin called the independent dollar (iDOL) without the need for over-collateralization. There is no requirement for users to deposit excess collateral as Lien Protocol facilitates two types of derivatives; the Solid Bond Token (SBT), and the Liquid Bond Token (LBT), from ETH.
Credits to Kerman Kohli
The Solid Bond Token (SBT) aims to have a stable value, whereas Liquid Bond Tokens (LBT) behaves like a call option as the amount of ETH the LBT holder receives increases as the price of ETH increases. With this separation of ETH into SBT (stable-valued token) and LBT (call option token), Lien Protocol completely removes the need for over-collateralization.
Lien Token (LIEN)
The Lien Token (LIEN) is a utility token used to receive discounts on protocol fees. These discounts are the fees that are collected in ETH/iDOL when users mint iDOL, and when users exchange assets on FairSwap. All protocol fees are distributed to LIEN holders as rebates at the end of each month.
iDOL is an ERC20 stablecoin backed by ETH derivatives (SBTs and LBTs). It does not use centralized collateral and stabilizes its price through market mechanisms that act on arbitrage opportunities. There is no governance in the Lien Protocol, ensuring that iDOL tokens are censorship-resistant. Users deposit ETH and get a 1:1 representation of ETH in the form of iDOL.
Fairswap
Fairswap is a Uniswap-inspired DEX that aims to provide users with “fair” trades using several new mechanisms. A guide on how Lien works can be found here.
A new capital efficient DeFi primitive is coming @LienFinance $Lien $iDOL pic.twitter.com/wLJocNnB5K
— Mervyn Chng (@mervynchng89) August 28, 2020
Front-running Mitigation
Fairswap prevents front-running by using frequent batch auctions. This means that trades are not processed according to their “queue” number, as this would open up opportunities for arbitrageurs to front-run orders to the disadvantage of users like you and me. With FairSwap, orders are batched in two neighbouring blocks which are cleared simultaneously, ensuring orders get the same, “fair” price.
Dynamic Fee Pricing
Trading fees on FairSwap automatically adjust based on estimated annualized volatility and the strike price of LBT. With this Dynamic Fee Pricing system, LPs are compensated for excess impermanent loss resulting from the volatility of LBTs.
Closing Thoughts
In summary, Lien offers a novel approach to permissionless stablecoin issuance set to rival DAI. Alongside competitors like MetaCoin, September is shaping up to be an exciting month for censorship-resistant stablecoins which have historically had a very tough time maintaining their peg.
To stay up with Lien, follow the project on Twitter or join the conversation on Discord.
Cooper is the Editor of DeFi Rate and an active contributor to leading DeFi media outlets like The Defiant, DeFi Pulse, and Bankless. He works with early-stage teams through Fire Eyes DAO to incubate governance models and grassroots community development. He is an ambassador to Set Protocol and an author of a weekly publication called Token Tuesdays. To stay up with Cooper, follow him on Twitter.