Silo Finance: Second Generation of DeFi Lending Protocols

tl;drThe first generation of lending markets involved some unwanted risks since there was one pool for all the deposited tokens. If an attacker gets access to a shared pool, all tokens are at many risks, including being stolen. Silo Finance has come into play as the second generation of DeFi lending protocols to provide solutions for the issues of the first generation. Silo Finance is against shared pools and has developed ideas to secure all tokens. You will find the whole story of Silo Finance in this article.
Silo Finance: Second Generation of DeFi Lending Protocols
Silo Finance: Second Generation of DeFi Lending Protocols
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What Problems Does Silo Finance Address?

The workflow used to be like this: there was one big (!) pool, and all tokens were deposited inside it. Chances were, an attacker could penetrate the pool and put all tokens in jeopardy. The attacker could manipulate everything, from the price of tokens to the value of his collateral. Even the attacker could steal the other tokens in that shared pool. As they say, one bad apple spoils the bunch! While you’re here, it’s best to learn all about Mining Pools.

First-Generation Token Restrictions

The restrictions previously applied on the tokens that could be used as collateral left many tokens without a lend/ borrow market. The first generation of lending protocols like AAVE and Compound impose such restrictions. Silo Finance tries to make a difference in this regard. Silo Finance has problems with one pool for all tokens and has tried to create one pool for each token. Each pool is limited to one unique token, and ETH works as the bridge asset.

How Does The Bridge Asset Work in The Silo Finance Ecosystem?

Imagine you wish to use token A as collateral to borrow token B. You need to move the bridge asset between Silo pools, like what happens with Uniswap’s trading pools. Hence, the only risk in pool B is ETH, not token A. The positive point of bridge assets is to let liquidity flow between pools efficiently and securely.

What Solutions Does Silo Finance Provide?

By isolating the hazard of all tokens to one pool and connecting pools together with ETH, Silo creates risk-isolating lending markets for all tokens so that any token can be collateral. Silo Finance is the first second-generation DeFi lending protocol that provides secure money markets for all crypto assets.

What Are Silo Finance’s Top Features?

Silo Finance stands out by offering three distinctive features, i.e., security, efficiency, and inclusiveness. Let’s see how Silo maintains these features.

Silo Finance Is Secure!

The Silo Finance protocol reduces risks thanks to its specific design. It creates isolated money markets known as Silos. Yes, that’s why it is called Silo Finance! Each Silo includes only two assets: the bridge asset and a unique token. Once created, all Silos share the same collateral factors, which can be configured for each Silo. Since Silo Finance isolates the risk of any given asset to a certain Silo, utilising new and high-risk assets in lending markets is facilitated, and the other assets in other Silos are exposed to zero systematic risks.

Silo Finance Is Efficient!

Silo Finance is efficient because each Silo is dedicated to a unique token asset. TIt means liquidity is maintained in single pools, and any token is allowed to be used as collateral to borrow other tokens.

Silo Finance Is Inclusive!

Being a permissionless protocol, Silo Finance allows any user to create a market for any token.

Why Does Silo Finance Care About Security In Money Markets?

It all began in May 2021, when Venus experienced insolvency due to the price manipulation of a collateral asset. And this happened to Venus, the biggest protocol running on BSC (Binance Smart Chain). This manipulation led to 100M USD debt, with numerous users losing their deposits. Again in October 2021, CREAM Finance was exposed to a $2B flash loan attack that resulted in $103M debt. Two months before this incident, CREAM had lost 19M USD in another flash attack.

Why All These Attacks?

When a shared-pool lending protocol accepts a token as collateral, if that token causes a problem, it will affect the entire protocol. This issue causes all these problems because of the design of lending protocols like CREAM. The security and strength of these protocols equal their weakest collateral asset. So, when they provide lending support for long-tail assets, their entire protocol becomes less creditworthy. Simply put, expansions reduce security in such designs. That’s why Silo Finance thought of a new design with much less risk.

Silo Finance Assets

Silo Finance is comprised of two main assets: a bridge asset and a unique token. Let’s elaborate on each one.

Silo Finance’s Bridge Asset

All Silos in the protocol are connected using the bridge asset (e.g. ETH). When a collateral token wants to borrow another one, two positions need to be created. Both of these positions are denominated in ETH, which means they almost cancel each other out. The user’s exposure to ETH is minimised, but the exposure to the long and short is maximised.

Silo Finance’s Unique Token

Silo Finance’s native token is used for governance purposes in the protocol. Governance means the token holders will create a DAO to vote, observe the protocol-controlled assets, adjust collateral factors, and so on. You can check out a list of SILO holders here.

Silo Finance’s Collateral Factors

Silos go for risk isolation as Liquidity Provider (LP) pools do on AMMs. Like Uniswap v1, each Silo v1 has the same parameters for Loan to Value (LTV), Liquidation Threshold, Liquidation Penalty, and Oracles. Up to 50% of the value of the collateral can be borrowed by the users. Liquidation of collateral happens when the debt position is 62.5% of the collateral. The liquidation threshold is high to decrease the risk of under-collateralization of Silos in a liquidation event.

Silo Finance Roadmap

The following is the Silo Finance roadmap for the first half of 2022:

Currently, the first two parts of Silo Finance’s mission are accomplished, the third is ongoing, and the rest of the phases are on the way.

Financial Analysis of Silo Finance

According to the data provided on Coingecko.com, today, on Apr 6, 2022, the price of Silo Finance’s native token, SILO, is $0.606183. Its 24-hour trading volume is $201,639, which shows it is up 0.8% in the last 24 hours. ISilo Finance’s circulating supply is 100 Million SILO coins, and its total supply is 1 Billion. The most active exchange to buy or sell Silo Finance is currently Uniswap (v3). Check out a more in-depth financial analysis of SILO.

Silo Finance Token Allocation and Vesting

The following images showing the token allocation and vesting schedule of Silo Finance are retrieved from Silo Finance’s official website.

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How Did Silo Finance’s Journey Started?

Silo Finance came into being on Sep 15, 2021, intending to create a lending protocol that plays the same role for lending that Uniswap played for liquidity. Silo Finance developed a non-custodial lending protocol to provide secure, inclusive, and efficient money markets.

Silo Finance’s Team And Community Accounts

The team behind Silo Finance include some unknown individuals with cartoon characters, which is not too abnormal in the crypto world but means that you should do your own research and make sure of any affecting factors before investing in any project. Shadowy Edd is Silo’s Smart Contracts Lead, Aiham Jaabari is the Growth Lead, and Siros Ena is the Frontend Lead. The following is the link to Silo Finance’s website and social media accounts:

Should I Invest In Silo Finance?

It is a good question, but nobody can answer it better than you and your financial advisor. Considering the price fluctuations, roadmap, and founders, one can assume that caution should be taken regarding this project. That being said, the technology and idea behind Silo Finance are admirable. If you’re looking for a yes or no answer to the above question from us, you need to think twice because we are no financial advisors! You need to check out your financial situation and preferences, analyse the project, all the affecting factors, the related news, price predictions, etc. Cryptologi.st can streamline this process for you by covering the hot news, top coin reviews, education posts, and all crypto! But remember that you are the one who makes the final investment decision!

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