Fintoch’s Competitive Landscape and Path to Mass Utilization
Established by Morgan Stanley and DF Technology Company, Fintoch is P2P blockchain finance platform funded in March 2022.
Aiming to be the “Decentralized Bank” in DeFi 2.0, Fintoch offer features including lending/borrowing, and low-risk investing in designated DEXes. More importantly, the short-term loan financing and short-term leveraged lending give users the options to engage in different level of risk exposure and capital utilization.
It’s clear to see that Fintoch being a money market, is experimenting with the design of under-collateralized loan and short-term leverage financing.
Undoubtedly, money market is the foundation for both financial system in TradFi and DeFi. It serves as one of the gateways of TradFi users to enter the DeFi space. A sound design of the system encourages the use of digital assets on blockchains.
While the greatest innovation of DeFi is enabling transparent and permissionless loan, it is facing a trade-off in capital efficiency.
Due to high volatility and anonymity, under-collateralized loan is impossible to realized in the current DeFi space. This leads to limitation in capital efficiency. For example, crypto native product like AAVE asks for a 85% LTV ratio to borrow USDC.
The following analysis dives into the landscape of current money market in DeFi. We picked five protocols for cross-comparision. From this analysis, we hope to derive insights that will guide the future development of Fintoch and continue to sharping its edge.
We captured four key aspects when comparing the differences across money market protocol design: function, collateral, fee structure and reward structure.
As we can see above, while most protocols embrace money market as their base function, various protocols are building layered features such as risk assessment by Maple Finance and leveraged yield farming by Gearbox and Mars.
Gearbox enables general leverage yield farming on integrated blue-chip DEXes such as Uniswap, Curve, Aave etc. On the one side, lenders can passively provide liquidity and earn a low-risk APY by providing single sided liquidity. On the other side, active traders and farmers can borrow assets to trade with up to 10x leverage. Mars protocol offers a similar feature that enables leveraged yield farming on whitelisted DEX such as Astroport. Although Mars took a huge hit during Terra’s collapse, it is working on a transition to an Appchain on Cosmos.
Targeting retail users, Fintoch is looking like an interesting experiment of money market with embedded investment feature. It limits short-term loan to be invested in Fintoch approved DEXes.
Since most of the money market protocols targets institutional lending, they have a goal of achieving undercollateralized loan. Yet, the trade-off is also rather clear as the institutional borrowers must go through cumbersome loan approval process to enter the whitelist. While the process is necessary to ensure credibility and security, the user experience might be lagging or not retail user friendly.Fintoch is unique in that it targets retail users at the current developmental stage.
Interest rates and Fees
Currently, Fintoch offers two kinds of loan financing cycle – 1-day and 7-day. The short-term loan financing features up to 1.5% lending yield, while the short-term leverage lending features up to 2.5% daily lending interest. On the other hand, platforms like Mars, TrueFi, and Atlandis adjust dynamically according to the pool liquidity and market condition. Specifically, Atlendis believes letting the users setting their own lending rate grant more control in risk exposure.
In addition, Fintoch currently implement a withdraw fee of 5% from the lending pool, which is relatively high comparing to other five protocols. For example, withdraw fees for Gearbox is plan to be cancelled in November, as it creates conflict of interest between the protocols and its LPs. The withdraw fee of TrueFi dynamically changes with the depth of the pool liquidity. As we can refer from the table the fee ranges from 0.05% to 10%.
Thus, regarding to fee parameters, protocols should work on sustainable source of revenue that does not jeopardize the interest of key shareholders.
We all know that token in DeFi allows for great flexibility for a protocol to play with incentives. Other than speculation, token serves as a channel to redistribute revenue to the loyal stakeholder of a protocol.
While Mars protocol has been paused due to Terra’s collapse, it does include some interesting design feature. While 80% of the interest-rate revenue goes to depositors, part of the 20% of the remaining revenue is distributed to xMARS stakers – people whose interest align with the long term development of the protocol.
Through Security Token Offering (STO), Fintoch allows retail user to become the shareholder by under government compliance. Specifically, for all daily earnings generated by investors on Fintoch, an additional 1% of the number of STO interests in the earnings funds (FTH for short) will be given. When Fintoch is listed, 30% of the shares will be distributed according to the number of STO equity shares per user.
It is impossible for a money market to have the encompassing ability to address the need of all kinds of users. Thus, it is important to be clear about the market that one is serving and cater to its needs. The focus of Fintoch is to enable short-term loan financing and investment in designated DEXes. Having the daily lending interest as fixed figures is thus reasonable considering the scope of the platform feature. Besides, having STO investment feature available is a smart strategy to comply with regulation while also enabling regular users to get a share of the platform’s revenue.
In the future, Fintoch can consider adjusting the Lending Aggregation Pool’s withdraw fee dynamically according to the pool liquidity. Onboarding institutional borrowers can also a possible move down the Fintoch’s long-term development plan.
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Fintoch is an innovative blockchain financial platform built by Morgan DF Fintoch, a Silicon Valley company from America. It is dedicated to breaking through the dilemma of traditional finance and making up for the shortcomings brought by decentralization. Fintoch provides diversified financial services such as lending, investment, and borrowing. Fintoch’s core feature HyBriid combines multiple signatures and zero-knowledge proof, which greatly promotes the development of blockchain security technology.