What is Silo Finance?
Secure money markets for all crypto assets.
Silo Finance creates permissionless and risk-isolated lending markets.
To appreciate what this means, let's break down each of the key phrases:
Lending markets allow users to lend and borrow assets. In traditional finance, this role is typically played by a bank. In decentralized finance (DeFi), protocols such as Silo allow users to fill this role without relying on a centralized entity.
Any token asset can have a silo. Users and projects alike can propose markets for token holders to vote on.
Lenders deposit funds into an isolated lending market consisting of Token ABC and the bridge asset only. If Token XYZ experiences an exploit, Token ABC lenders will not be affected since the risk is isolated to the Token XYZ market.
Decentralized lending markets are not a new concept, with Aave and Compound pioneering the lending space. Silo aims to become the leading lending protocol by building upon the core drawbacks of the earlier protocols.
Shared-pool lending protocols like Aave and Compound create a single pool lending market for all token assets. In their implementation, Aave gathers all token asset deposits in the single pool where only a small set of token assets are whitelisted to be used as collateral to borrow any other token asset within this pool.
In the event of an exploit in collateral token or their price oracle, attackers can steal any token asset since they are all deposited into the same pool. Given the risk collateral tokens pose to the entire protocol, shared-pool lending protocols restrict collateral tokens to a handful of assets and, therefore cannot scale to accept long-tail assets.
If your token is not whitelisted as collateral, you have no choice but to look at other lending markets.
Silo uses an isolated-pool approach where every token asset has its own lending market and is paired against the bridge assets ETH and Silo's over-collateralized stablecoin XAI. Lenders in all protocols are only exposed to the risk of ETH and XAI at any given time.
In addition, since all tokens are paired with ETH or XAI, there is only a single market for every token asset, preventing fractured liquidity and allowing greater protocol efficiency. This is as opposed to pure lending pair approaches, where a new lending market is created for each additional pairing.