How does this protocol of your work exactly, again?
It's really simple at the end of the day. You have guys who provide the crypto assets (we call them Lenders) and another group of guys that use these assets to get extra leverage to use for the liquidity baking protocol on the Tezos blockchain (farmers). Lenders are rewarded interest rate for this and the reward depends on what percentage of assets they provided actually end up being used by farmers. Farmers get rewards for liquidity provision (more of this in the description of liquidity baking) and they also can use up to 4x leverage to juice up returns thanks to an asset pool submitted by Lenders.
What problems does your project aim to solve?
It's simple: we want there to be more liquidity in Tezos and we also want to have a safe and transparent DeFi instrument that would allow Tezos blockchain participants to earn extra interests on their asset holdings!
What is liquidity baking?
It’s really simple. You are providing liquidity through a Decentralized Exchange contract to the Tezos protocol between tez and tzBTC (a special token that corresponds 1 to 1 to Bitcoin). This contract works because the protocol itself creates tezos at every block and adds the created funds to the contract. This incentivizes its users to provide liquidity to the contract in order to capture a portion of the subsidy. The way liquidity is provided is simply by submitting both xtz and tzBTC at market exchange rates and receiving the redemption right through the token. At redemption, you get back xtz and tzBTC but the proportions will be decided by the new exchange rate between BTC and xtz at the time of withdrawal. Thus liquidity bakers earn rewards (inflationary tezos ones in case of xtz/tzBTC pair) while taking on the risk of changing exchange rates for the pair they provide liquidity to, which is known in crypto as impermanent loss risk. There is also some commission burned by this contract to ensure that the inflation rate in tezos does not get out of hand.
Note that these liquidity contracts are standard Tezos blockchain mechanisms and we simply plug farmers into them. The novelty here comes from the way they are financed by pooled loans from the Lenders.
Why should anyone care about liquidity anyway?
Well, you see, the more liquid an asset is the greater is the demand for it. It is only natural to want to hold assets that you can quickly buy and sell and convert to other assets. The desire of investors to have more liquidity is why centralized exchanges for decentralized assets like crypto became so popular in the first place despite sounding a bit like an oxymoron.
Even if you are a completely indifferent Tezos “HODLer” who “never plans to trade and HODLs” you still have a deep, vested interest in seeing more liquidity in Tezos since this will automatically help attract more institutional money (that naturally cares deeply about liquidity as these guys like assets that are easy to sell if clients need to redeem money) and thus greatly boost the total Tezos market cap.
Why are you so focused on Tezos specifically?
Good question! Tezos is a great blockchain with enormous potential: it is a PoS smart-contract chain which means it can do almost everything ETH can but at a much lower cost to the environment (not to mention computation resource allocation). In fact, according to independent experts, Tezos blockchain is 2 million times less greenhouse gas polluting than Ethereum one. So there are some very solid reasons to root for its long-term success.
At the same time, Tezos DeFi community and ecosystem clearly lag much behind ETH one and we believe that our mission is to essentially help Tezos to close this gap and eventually catch up and even surpass Ethereum in popularity.
What makes your protocol so special compared to others?
We’re not the only ones who offer lending in Tezos. And certainly not the only protocol that participates in liquidity baking. However, what is unique about Kord.Fi is that we combine both these activities on-chain through our protocol. This makes a huge difference as it allows both Lenders and Farmers earn more than they can on stand-alone platformers. This is especially beneficial for Farmers as without accessible and cheap Leverage from our Lenders their APY is not very attractive (around 30% pa) for all the impermanent risks they need to bear.
What’s in all of this for you personally? How do you guys make money?
We get allocated a small cut of total Lender returns. This seems pretty reasonable all else equal as our rewards are large enough to provide the incentives to deliver the project that helps everyone in the Tezos community. At the same time, they are not too big and Lenders still enjoy hefty returns on their assets. Additionally, we also get a small upfront commission on each loan.