Decentralized Finance: A New World of Opportunities
As technology keeps evolving, new and groundbreaking solutions start to emerge for all areas of life and their demands. Finances were undoubtedly one of the first cases, with the creation of what’s called Decentralized Finance. DeFi, for short, is a term used to describe a new financial digital ecosystem, based and built on blockchain technology. It favors community and transparency over big conglomerates of power, information verticality and secrecy.
What’s the Purpose Behind DeFi?
The core of DeFi lies in its users: they are the ones that, through offer and demand’s mechanism, can exchange digital assets with no third parties involved. What does this mean? Centralized institutions, such as traditional banks, started to have real competition in creating genuine and secure financial solutions in day-to-day transactions. Investments, payments and loans can be made through different DeFi tools now. These technologies, often called protocols, are being built and improved by engineers, developers, and specialized professionals every day, and it’s being seen by many as the start of a big social change in how we perceive and use money.
What is Hatom Protocol?
Hatom is a decentralized algorithmic protocol built on the Elrond blockchain that allows its users to borrow, lend and stake their crypto assets at competitive interest rates. Depositors earn passive income by providing liquidity to the market, while borrowers can have access to them in an over-collateralized manner.
How does it calculate the floating interest rates? Hatom uses an algorithmic interest rate model based on the utilization of each money market to encourage users to both provide liquidity or take borrows. Even though the protocol does not guarantee liquidity, meaning that in case of high demand of an asset withdrawals or borrows will be limited, there are mechanisms in place that help mitigate such situations. When utilization is high, interest rates rise, encouraging supply and disincentivizing borrowing. On the contrary, when utilization is low, interest rates are low and borrowing demand increases, raising interest rates.
Idea and Execution: How Does it Work?
Hatom money markets are based on an interest rate model built around the supply and demand ratio of each particular asset, which constantly changes depending on market conditions. Each money market updates its state as users mint, redeem, borrow, repay borrows, or liquidate the position of another user.
Lending and Borrowing
Lending is the process of supplying tokens to a liquidity pool in exchange for a gain interest in the tokens users have deposited. You can deposit any amount you want: there’s no minimum or maximum quantity to operate. The earned interest comes from the users who pay interest to borrow tokens. Once we understand this, it becomes important to state that lenders can withdraw their supplied tokens at any time, as long as they aren’t being borrowed.
Why would you borrow instead of selling your assets to make a new investment? There are many situations where borrowing is desired, such as avoiding taxes when selling your tokens, shorting a token (i.e. bet that the token price you borrow will fall in price, making your loan repayment less expensive), avoiding losing the potential upside value gain of your current investments, among others.
The amount users can borrow depends on the amount they have deposited as collateral. To repay their loans, users have to use the same asset they borrowed with no specific time for the payback, adding the interest accrued.
Foremost, at Hatom you can operate with a wide variety of cryptocurrencies, including stablecoins like USDC or well-known tokens such EGLD, MEX and RIDE.
What are Hatom Tokens?
Let’s picture it graphically: Hatom tokens, or HTokens for short, function as the receipt provided to suppliers once they deposit crypto assets into the protocol; they are at the heart of the lending system. Why? Because they are minted or burnt whenever a user supplies or withdraws a crypto asset.Notice that there’s a HToken for each money market.
Liquidation: Tips and Hacks
Liquidation is the process in which a borrower’s loan is repaid in exchange for a fragment of their collateral at a discounted price. Liquidators are encouraged to keep looking for loans eligible for liquidation to keep the lending protocol healthy and prevent users going into insolvency.
A liquidation penalty (or liquidation incentive) is a cut in price at which a liquidator receives a user’s collateral when completing a liquidation.
To avoid getting liquidated, the total value of your collateral has to be worth more than your total debt. Here is some advice that can help you avoid getting liquidated:
- Do regular checks to make sure your position remains in good health
- Go for a stablecoin option in the deposited or borrowed asset. This will help you reduce the number of variables at stake in the process
- Avoid borrowing the maximum amount and make sure you have a repayment plan before taking a loan
If you are still at risk of liquidation after taking all the safety measures, there are two things you can do:
- Deposit more collateral to back you up
- Pay back either the entirety of your loan or a portion of it
Truth is anyone is welcome to participate in the liquidation ecosystem: it’s designed to be a competitive market in which some users even decide to develop their own bots and solutions to be the first to liquidate positions and receive the liquidation bonus.
Grants: How to be Eligible
To encourage devs to build on the Hatom network and help expand it into the DeFi ecosystem, a portion of the Hatom treasury will be allocated to a grants program. How does this work? The grant’s main goal is to boost the growth of Hatom by establishing a community-driven culture: each active user will contribute to turning Hatom into a DeFi Hub.
Community Governance: Building a Decentralized Future
Hatom protocol is building and enlarging its community through social media, liquidity mining and more: tokens will be the key factor in the governance mechanism, acting as a master key to unlock benefits. Tokens will enable the lending protocol to be 100% community-driven in which the people will be deciding on new upgrades, features, and advances through on-chain voting, for which you must hold an amount of Hatom Tokens (i.e. HTM tokens, not to be mistaken with HTokens).
Furthermore, a certain percentage of the Hatom lending protocol revenue is dedicated to a Staking Yield, where the community will be able to stake their Hatom tokens and earn interest in the form of different available assets on the lending protocol, creating a passive income stream for their users and early investors.
Hatom’s dedicated team continuously collects feedback and uses it to create specific polls to match the community's needs and upgrade the app according to their preferences. By doing this, they show that their users are at the heart of it all.
Rather Labs partnered with Hatom's founders to develop their roadmap into reality by providing the infrastructure and professionals who were needed since the initial stage, accompanying the team through the entire process.
Hatom also aims to provide the Elrond Blockchain community with a variety of new services and products that will be integrated gradually through the Hatom platform.
If this article sparked your interest, you can dive into it and join Hatom’s community on Discord and Telegram, where upgrades are communicated and a thriving community is constantly sharing information.