Financial institutions are increasingly entering the decentralized economy with a particular interest in DeFi protocols. Lending and borrowing is one of the most popular DeFi products, demonstrated by the growing popularity of lending protocols such as Aave, Compound, and Maker.
What makes lending and borrowing different in DeFi compared to TradFi, is that central intermediaries are replaced with smart contracts. This allows for multiple benefits including reducing fees, trustless transactions, and full transparency for processes such as reward distributions, principle payments, collateralization ratios and more.
For the DeFi space to continue scaling beyond its current state and eventually replace the traditional financial system, improved access to efficient capital markets is vital. One project building the infrastructure to make this a reality is Clearpool, an institutional-grade, decentralized borrowing and lending protocol that has gone from strength to strength since its mainnet launch in March 2022.
Clearpool is the first ever decentralized and dynamic marketplace for institutional unsecured capital, combining capital markets with blockchain technology. Through the platform, institutional borrowers are provided access to unsecured liquidity without the risk of liquidation, while liquidity providers (lenders) are attractively rewarded for taking on risk.
This is enabled by Clearpool’s dynamic single borrower pools which adjust interest rates based on the utilization ratio of each pool - how much is currently being borrowed vs. total pool size. Clearpool also offers a credit reputation framework, and a sophisticated tokenized credit and risk management solution for lenders to monitor, manage or hedge risks.
The protocol’s innovative solutions including borrower liquidity pools and tokenized credit have attracted several prominent investors including Sequoia Capital, Sino Global Capital, Arrington Capital, HashKey Capital and more.
Hex Trust partnered with Clearpool to provide digital asset custody services for its participants, as well as compliance services including KYC, transaction monitoring and client verification. Additionally, Hex Trust was recently announced as a Genesis Oracle for Clearpool as part of the project’s oracle mechanism. Hex Trust participates in ensuring the interest rate curve applied to Clearpool’s permissionless pools move dynamically with market conditions.
The Clearpool protocol enables whitelisted institutional borrowers to launch single borrower liquidity pools, where their interest rates fluctuate depending on the pools’ utilization ratio.
CPOOL is the protocol’s native token, designed as a utility and governance token with several different functionalities. Borrowers must stake CPOOL to open a pool, while lenders receive the token as extra reward in addition to the interest rate payments made in USDC. Clearpool Oracles also need to stake CPOOL to be eligible as an Oracle and can earn token rewards for securing the interest rate mechanism by voting on its parameters. Any participant can delegate their CPOOL voting power to an Oracle, and earn a share of staking rewards that the Oracle receives.
In order for institutions to become borrowers on the Clearpool platform, they must first go through a credit assessment process. First and foremost, the institution must be whitelisted, then move onto due diligence, KYC and AML procedures while staking CPOOL. These procedures are conducted via the Clearpool team and their credit risk assessment partner Credora. Following thorough evaluation, a credit assessment rating and risk score are generated, which can be used by potential lenders in understanding the borrower’s capacity, and assess the risk they’re taking.
Click here to learn more about the credit risk assessment.
Post-credit assessment, institutions can launch their own liquidity pool which enables anyone in the DeFi space to lend to them. Lenders can deposit USDC to their borrower specific liquidity pool of choice, and receive a cpToken in return. These cpTokens (similar to LP tokens in other DeFi protocols) represent the deposited principal amount as well as the interest which is accrued on every block. They are also transferable, redeemable and programmable – which is what enables Clearpool to offer innovative opportunities for tokenized credit and risk management.
When institutional borrowers withdraw capital from their pool, the pool’s utilization ratio increases, and increases interest rates. This enables lenders to earn risk-adjusted returns.
Over the last few years, we have seen increasing demand from institutional players to access the decentralized economy, with the likes of Wall Street giant Jane Street launching a borrower pool on Clearpool. The market is pointing to a greater need for a compliance-focused, safe and institutional-friendly decentralized capital markets system – which Clearpool was designed to serve.
It's important to emphasize that Clearpool is a decentralized protocol which connects borrowers and lenders. The protocol does not manage users’ funds like other uncollateralized lending and borrower protocols which aren’t fully decentralized. This unique aspect of Clearpool is what has drawn over $337M USD of loans originating on the protocol, with eight permissionless borrower pools and two permissioned pools from prominent organizations around the world.
It’s no surprise that the Clearpool name has captured the attention of leading institutions in both the DeFi and TradFi space, and is regularly featured by top media publications. Many blockchain projects have gone silent throughout the bear market, but Clearpool remains one of the most active with continuous product innovations, and critical protocol metrics such as Total Liquidity Provided increasing. Clearpool will be the enabling factor as the next wave of TradFi enters DeFi, with its commitment to compliance, security, and building an institutional-grade platform.