Meet Clearpool The Lending Platform At The Forefront Of Defi 2.0
The decentralised finance (DeFi) ecosystem has witnessed massive growth in the last couple of years. It has ballooned from a mere $700 million industry in 2020 to a burgeoning $200 billion space in early 2022. This boom can be attributed to the sheer number of innovative lending protocols cropping up over the last few years.
One of these platforms that have quickly powered its way to the forefront of the DeFi ecosystem is Clearpool. However, while most other platforms in the space cater to retail borrowers, Clearpool is dedicated to institutional borrowing. Another thing that sets Clearpool apart from the crowd is that it runs a collateral-free model, which is almost unheard of in the DeFi space.
Lets take a closer look at this up-and-coming platform that has the potential to usher in a new era in the DeFi space, especially once institutions realise the benefits of decentralised finance over traditional borrowing options.
What is Clearpool?
Clearpool is a decentralised network of investors from whom institutions can borrow liquidity without any collateral. Clearpool has partnered with trading firm Jane Street and blockchain investment company BlockTower Capital to launch what is called a permissioned liquidity pool.
Institutional borrowers that Clearpool whitelists can create their own liquidity pools for individual borrowers. Presently, Clearpool itself does all the whitelisting. As it grows with time, the native CPOOL token holders will be given vetting rights to onboard more borrowers.
The pool was launched on May 3, 2022 and is funded with $25 million worth of USDC stablecoins. Clearpool intends to expand this pool to $50 million soon. Lenders funding these liquidity pools can earn interest on the amount they lend. It uses a unique dynamic interest rate model which determines the rate based on market demand and supply.
How does it work?
Borrowers need to stake their CPOOL tokens in order to become eligible to create a liquidity pool. At present, every borrower is staking 500,000 CPOOL tokens to the protocol while the Clearpool team works on a more case-specific model. The protocol has partnered with X-Margin, a credit lifecycle manager, to determine credit risk scores for borrowers and ensure KYC & AML compliance before they disburse anything. The protocol ensures that the entire process is executed without compromising the privacy of the borrowers, which brings us to the end of the onboarding process.
Borrowers can simply connect their crypto wallets with the Clearpool App, and they will be shown a dashboard of the liquidity pool available for borrowing. They choose to borrow or repay USDC from the same dashboard. The Ethereum smart contracts manage these transactions.
Borrowers are free to choose when and how often they wish to make repayments.
There is no restriction on becoming a lender, and the pool size is not limited. One can effortlessly connect their crypto wallet and provide liquidity by depositing USDC. In return, the pool credits the lenders wallet with cpTokens. These tokens represent the lenders contribution to the liquidity pool. They also represent the accrued interest and the borrowers risk profile.
The accrual of interest rate is on a per-block basis, which means that every time a block is created on the blockchain, the interest gets added to the borrowers owed sum. The underlying metric is the utilisation rate. This means that when a liquidity pool is being utilised more by the borrowers, the interest rate for lenders is higher.
The liquidity pool can only be utilised up to 95 percent (set default). This state is called High-Util, and lenders are allowed to keep pumping in liquidity or withdraw their funds, whereas borrowing is halted. Lenders trying to withdraw their funds must do so before the utilisation rate reaches 99 percent, as the pool does not allow fund outflow then. At this time, the pool enters the Warning phase and allows borrowers a period of 120 hours (5 days) to return funds and pull down the utilisation rate to within 95 percent.
So how does Clearpool manage without collateral?
An automatic auction is triggered when borrowers fail to return the borrowed sum within the grace period of 120 hours and bring the pool back to its active state (<95 percent utilisation). Clearpool users can bid cpTokens equivalent to the defaulted amount in order to acquire the legal rights to the pool's debt. All whitelisted institutions and individuals are allowed to participate in the bidding. The auction runs for 168 hours or 7 days, and the bids must total an amount greater than the insurance.
According to the Clearpool website, if a winning bid is accepted, the winning bidder will receive an NFT containing the legal rights to the pool’s debt, and the exclusive legal right to pursue the defaulted borrower. However, if the bid ends up being rejected, then each cpToken holder will be able to redeem their cpTokens for a proportionate share of the pools insurance account.
Every liquidity pool has an associated insurance account. For each block created, a small percentage of the liquidity pools interest is routed to this insurance account (currently set at 5 percent). This can be modified through governance changes later on.
There is also a reserve pool, which, unlike the insurance, is not pool-specific. Every transaction on the Clearpool protocol routes 5 percent of the amount to the reserve pool. This pool is used to develop the network and also in the event of a CPOOL buyback.
CPOOL is the native governance and utility token of Clearpool and is yet to be rolled out. CPOOL owners will be the ones whitelisting borrowers in the future.
Borrowers will have to stake their CPOOL tokens in order to qualify for whitelisting. Lenders get additional rewards in CPOOL tokens for providing liquidity to the system.
There will be a maximum of 1 billion CPOOL tokens in circulation, of which only 40.35 million will be released initially. CPOOL cannot be bought using fiat currency at the moment. However, it can be purchased using BTC, ETH, USDT, and BNB on exchanges.