The technology of noncustodial liquidity markets has made its debut on a Layer-2 network, succinctly known as Base, spearheaded by a cross-collaboration between esteemed decentralized finance developers. This development ensures a secure way for smart contracts to automatically connect liquidity pools with borrowing strategies, operating seamlessly on the intuitively built Seamless Protocol, a fork of Aave v3.
For those still navigating the world of decentralized finance, this might seem trivial, yet this innovation essentially sidesteps the traditional ‘trust humans over algorithms’ dynamic. The borrowing strategies embodied in Seamless Protocol act like bespoke loans wherein the liquidity supplier is privy to the borrower’s loan purpose upfront, thereby promoting transparency in transactions.
This development also brings light to the concept of undercollateralized borrowing, a mechanism not unfamiliar to crypto space enthusiasts. Protocols like Maple Finance essentially enable undercollateralized lending to institutional investors. However, these processes generally combine off-chain and on-chain steps, causing complications for the borrower in terms of negotiations and subsequent loan issuance.
However, Seamless Protocol seems to have found a way around this. It presents a streamlined method where “Integrated Borrowing Strategies” act as a bridge connecting the borrower to the liquidity supplier, reducing unnecessary steps and complexity for the user.
One could argue that general purpose loans hold more appeal due to their ability to adapt to various situations. Yet, these conventional loans are subject to overcollateralization, a requirement outlined by standard DeFi lending rules. Keeping the user experience in mind, Seamless Protocol hygiene its solution as a better fit for DeFi.
This does place a few aspects under scrutiny – reliability, security, and adaptability to name a few. The utilization of on-chain identities such as WorldCoin’s proof of personhood system brings up questions about the feasibility of the project in practical scenarios.
In conclusion, as we ride the wave of ongoing innovation in the crypto space, these new strides toward enabling seamless DeFi lending and borrowing impose a reconsideration of our dependence on traditional methods. The protocol emphasizes trust in code over humans, ultimately drawing us back to the fundamentals of crypto and DeFi.
Source: Cointelegraph
