Building a Lending Network
Things to Consider When Creating Your Own Lending Network
A lending network is a collection of money markets (MM) with a Comptroller contract that acts as the "brain". MMs do not communicate with one another directly and are not aware of each other's state. This communication is facilitated by the comptroller, who "knows" everything and approves all actions that a MM performs. MMs cannot give out loans, have users withdraw collateral, or have liquidators liquidate a position without getting the comptroller's approval.
Each lending network also has an admin who is responsible for their lending network's configuration - from listing new MMs to tuning risk parameters. Unlike Uniswap Pairs which are completely immutable, the ability to tune parameters and respond to changing market conditions in a LeN is absolutely crucial. By default, the admin is simply an EOA (Externally Owned Account, ie. an account that is controlled by a real-world entity rather than a smart contract). In LeNs where the admin is an EOA, users ought to be more suspicious of the creator. To reduce the trust needed for the LeN creator, the admin can be set to a Timelock contract; this would force changes to be pending for a while before going into effect. In the future, options that include a multi-sig admin contract or general governance contracts will also be available for LeN creators.
Creating and owning your own lending network possesses unique benefits and is substantially different than listing your token on another lending network.
Let's take a fictional project with native token TKN that wants to offer lending and borrowing services to their community. They could simply launch a lending network on Ola, or push for TKN to be listed on another lending platform. So which option is better?
There are a few notable advantages to Ola:
- 1.Fast and Seamless Listing Process. While most lending networks are open to listing new tokens, it still requires approval from their Listing Committee and a governance vote. This creates a situation where most tokens are still not supported. Ola on the other hand, by and large, accepts all tokens. All TKN needs is a somewhat deep market and a reliable price oracle which can be derived from an integrated oracle provider (like Chainlink or Band) or from an AMM token Pair (see more about oracles here:Price Oracles).
- 2.Token Approval Rights. In most lending networks, TKN would be part of a large network of many tokens, where new ones can be listed at any time. This introduces the risk of predatory behavior in borrowing TKN. This is not a theoretical problem - see this story on how very large sums were borrowed against FTT and then used to manipulate prices. In Ola, creators can determine which tokens are accepted in their lending network, thus controlling which type of collateral is accepted to borrow TKN.
- 3.Flexible Interest Rates and Fees. In some lending networks (eg. CREAM), the difference between the interest rate that borrowers pay and suppliers earn is very high. This is due to a very high reserve factor (40% for most tokens, going as high as 50%). In addition, the multiplier used in interest rate models is 35% which is very high relative to other platforms - this means that borrowers pay a lot. While CREAM gives no control to the TKN community over these values, Ola gives full control to set them.
- 4.Revenue for Creators. In most lending networks, the entity that makes the effort to get their token listed is not rewarded (at least not directly). In Ola, however, LeN creators are rewarded for their efforts by earning fees generated from their LeN. This incentivizes them to launch a LeN in the first place, but also to promote it and maintain it.
- 5.Project Branding. In most lending networks, your token appears as just another listing on the lending protocol's site. Creators on Ola, however, benefit from a unique UI that includes brand-specific elements such as their logo, background design, and brand color palette. This makes each lending network on Ola 100% unique and representative of the creator's brand.
Responsibility: Launching a new lending network should not be taken lightly. A LeN is a dynamic creature that requires constant inspection and ongoing maintenance. The creator of a lending network is its admin by default and the one responsible for it.
Costs: Although Ola does not charge any kind of setup fee, deploying a new LeN can be costly (in terms of gas) and bears operational costs. This includes costs to promote/advertise the network and provide initial liquidity for some or all of the MMs in order to bootstrap activity.
The following section lists the parameters that are set when building a LeN. Generally, we adopt Compound’s terminology (see the Compound protocol specification), except when we introduce new parameters or concepts.
Currently, to launch a new LeN, one needs to contact the Ola Finance team.