What is Lendroid?
Lendroid is a non-rent seeking, trust-independent, open protocol enabling decentralized lending, margin trading and short selling on the Ethereum blockchain. It aims to solve the shortcomings of centralized exchanges by creating a global shared lending pool, and a symbiotic off-chain infrastructure supported by incentivized participants - Relayers and Wranglers. Simply put, Lenders contribute their offers to the lending pool through relayers, who then match the offers with appropriate traders. The traders can use the borrowed funds to margin trade, make a profit, and repay the lenders.
How do You lend & margin trade?
Lending - A borrower pledges digital assets into an escrow account, with specific terms for the loan set in a smart contract. If the lender’s and borrower’s terms match, the smart contract is executed, locking in the collateral and releasing the funds to the borrower funds. If the loan obligations are satisfied by the borrower, his collateral is unlocked automatically. If the borrower defaults or the collateral drops below the agreed loan to value, the collateral is liquidated.
Margin trading - A margin trader starts by depositing collateral. The trader is allowed to borrow up to a certain leverage to the point where the margin level is greater that the initial level (set through community governance). The borrowed funds come from the shared lending pool to which the lenders can submit offers. With the borrowed funds, the trader interacts with order-books to calibrate positions to reflect expectations from future price movements. Once the traders feel it’s time to unwind their position, the trader once again interacts with the order book. If the trader made a profit, he can repay the lenders and withdraw the profit along with his collateral. If a loss is incurred, the trader is expected to deposit the difference to compensate for the losses, repay the loans in full and only then withdraw collateral. If the account reaches liquidation levels, the wranglers step in and take over the account/positions.
What about Token support?
Lendroid is compatible with any ERC20-based token. This gives the margin trader a high level of flexibility with respect to the nature of collateral he can deposit against a loan. A Margin Trader is free to deposit not just one kind of collateral in a token of his choice, but multiple kinds of ERC20-based tokens at the same time, in the same margin account. In what is envisioned as a community-driven governance model, the protocol will add or remove support for a token based on the current volatility of the token.
How does a Lender participate?
The lender broadcasts the loan-offer to all decentralized exchanges (off-chain action, analogous to a Maker order from the 0x protocol). The lender deposits the funds into the Funding Account of the Lendroid Smart Contract System. To lubricate the inherent processes, the lender deposits some LST (Lendroid Support Token) meant for the Relayer at the end of the loan period. Some he deposits for the Wrangler in the event that it was he who identified the Margin Account at liquidation level and helped close the loan. The LSTs required for these processes are locked in at the time of initiation. If there is not enough LST for these processes, the loan is not initialized.
How does a borrower margin trade?
On Lendroid, the Margin Trader enjoys leveraged lending in a uniquely decentralized environment. A Margin Trader can avail a loan through his Relayer. Offers are signed by the respective Lenders who made them are available with the Relayer. He avails the loan, deposits collateral and engages in margin trading/short selling. He opens a margin account, within which he is free to change positions or add collateral (if the health of the margin account dips). He can withdraw his collateral or liquidate his Margin Account when there are no loans owed.
Who are Relayers?
The Wrangler is an entity conceptualized for the Lendroid ecosystem. One of two incentivized actors within the protocol, the Wrangler is intended to perform a computationally intensive role, that of monitoring the Margin Accounts. By monitoring and ‘Wrangling’ terminal accounts (at liquidation level), the Wrangler maintains the general health of the ecosystem, while also protecting the interests of the Lenders. From the creation of a Margin Account, to every state change in position, adding of collateral, right until the account is liquidated, the Wrangler keeps tabs on each development. Whenever there is a change in state, the Wrangler notifies the Smart Contract System, which then triggers an Oracle call and subsequently checks the margin level of the account
How does the Lendroid Auction occur?
When a Wrangler identifies a terminal margin account, the claim is verified by the smart contract. If ratified, the Wrangler is awarded a bounty (part of the loan offer object, deposited by the Lender) and the auction is triggered. The Lendroid auction is not winner take all. The trader’s collateral and positions are taken over, but not by any single Wrangler. Every Wrangler chooses to repay a small portion of total outstanding loan and his bid would be proportionately considered.
What are LSTs? What's their utility?
The Lendroid Support Token, or LST, is the native token of the Lendroid protocol. Participation on the protocol requires a user to possess LSTs. Those that do not are incentivized to earn LSTs by engaging in activities that contribute to the health of the ecosystem. As with all ERC20 tokens, LSTs will be tradeable following the crowd TGE. The LST enables utility and lubricates processes on the protocol. There are four players on the protocol, two of which provide utility - the Relayers and the Wranglers, and two others who avail of these utilities and participate to maximize profits - the Lenders and the Borrowers/Margin Traders. On Lendroid, the toll for service or utility providers on the protocol is baked into the system. Even without possessing a single token of LST, a user might participate on Lendroid. As a Wrangler, he can monitor Margin Accounts and choose to earn LSTs by identifying those accounts at liquidation level. In other words, they can be part of the network even without LSTs, by pitching in to provide vital services like monitoring loan lifecycles and margin accounts.