Due to the number of possibilities stored within the permissionless lending protocols, this trend quickly grasped the attention of the public. With the promise of creating an inclusive, unrestricted financial space based on underlying secure and efficient infrastructure, this trend in DeFi brings hope of restoring an economic balance heavily undermined during the pandemic. By breaking away from the hegemony of traditional financial institutions, DeFi lending pledges to occupy a central place among the most disruptive trends in the forthcoming 2022.
Silo Finance, a second-generation lending protocol, is on track to transforming money markets into more secure, efficient, and accessible ones, breaking down the limitations imposed by first-generation lending protocols. Away from systemic exploits such as flashloan attacks, Silo mitigates risks by creating isolated money markets - each comprising a unique token and the bridge asset, thus isolating the risk only to one asset in each market. Thanks to the bridge asset connecting the isolated markets, collateral on the platform can be secured in the form of any token asset, which allows for liquidity to flow among markets fluidly and efficiently. All factors combined bring Silo to the frontline of the new transformation movement, signaling the dawn of the inclusive Defi.
Driven by the quest for knowledge, I reached out to Aiham Jaabari, Founding Contributor of Silo Finance, in a hope of gaining valuable insights about the project.
To begin with - what Silo Finance is all about?
Silo is a risk-isolating lending protocol that aims to enable any token collateral. It brings secure and efficient money markets to all crypto assets. We aim to do for lending what Uniswap did for liquidity.
What was your motivation behind this project? What is the problem you wanted to fix?
First-generation lending protocols like Aave and Compound suffer from two major issues:
- They expose users to risk because they bundle tokens in one big shared pool where one exploited token can be used to steal other tokens in the pool.
- They are restrictive by design - only a few assets can be used as collateral.
Knowing the limitation of existing lending protocols has motivated us to design a better lending protocol that can deliver on the shortcomings of those protocols.
Do you expect more competition in the space within the upcoming years? What sets you apart from other projects?
Defi is not a winner-takes-all market, thanks to its composability that makes it cheap for developers to innovate and for users to switch to protocols that happen to offer a better value at the time.
Silo now only improves drastically on shared-pool existing protocols but also existing isolated money markets. Let’s take a look:
- Kashi for instance creates an isolated money market for any pair of tokens imaginable. For Dai alone, they have over 30 markets. This market design fragments liquidity and renders the protocol inefficient.
- Rari’s Fuse - another implementation of isolated markets - creates isolated pools that consist of many tokens; the entire pool is rendered risky when one of the token assets cannot be trusted for any reason. In other words, we are back to the same problem we see with CREAM/Aave where users share the risk of all tokens in the pool.
Could you please tell a bit more about the structure and design of the 2nd-generation lending protocol? Why has it been chosen as the basis for Silo Finance?
As the first 2nd-generation lending protocol, Silo creates a new paradigm for risk-isolating lending protocols - it:
- Compartmentalizes risk through design, not through watchdogs
- Minimizes governance; governance is not needed to whitelist assets
- Accepts all token assets
- Is highly liquid and fluid
- Allows for any token collateral
Let’s take a look under the hood.
Silo creates one pool for every token. Each pool is limited to one unique token & ETH, the bridge asset.
If you want to use token A as collateral to borrow token B, you move the bridge asset between Silo pools. Therefore, the only counterparty risk in Pool B is ETH, not token A. The bridge asset allows for liquidity to flow between pools efficiently and securely.
By isolating the risk of all tokens to one pool and connecting pools together with ETH, Silo creates risk-isolating lending markets for all tokens so that any token can be collateral.
Inquiring specifically about your fundraising mechanism – what are the benefits of Gnosis Auction, as opposed to other existing approaches?
Gnosis Auction has major benefits over existing approaches. The auction closes with a single clearing price for all tokens, regardless of how much each winning bidder bids. This is the fairest way for the community to establish a single floor value for the token before any token enters circulation. Additionally, the problem of frontrunning is minimized. Bots can’t purchase tokens only to sell them for a higher price during the auction.
We want to build a culture of togetherness, fairness, and transparency for our DAO, and we think auctioning off tokens on Gnosis Auction will be the first step to establish such a culture.
Who are the main investors and partners of Silo Finance?
We have raised a seed round from top builders in the space. We think Sam Kazemian from Frax, Santiago R Santos, Ameen from Reflexer, Tyler Ward from BarnBridge among many others will offer guidance and support along the way that will prove beneficial to the growth and evolution of the Silo DAO.
And who are the most important contributors to the success of Silo Finance?
We have raised a seed round from builders and angel investors in DeFi such Sam Kazemian from Frax, Santiago R Santos, Ameen from Reflexer, Tyler Ward from BarnBridge, Regan Bozman from Lattice, Sherwin Lee and Keith from PSP Soteria, SHAPESHIFT DAO, and others. We believe such important figures in Defi will offer guidance and support along the way that will prove beneficial to the growth and evolution of the Silo DAO.
What role does the notion of trust occupy in Silo Finance?
Silo’s money markets will always act the way they are designed to - they isolate risk, never take custody of the user's token assets, and liquidate collateral when needed. However, given that the protocol is permissionless, the same level of trust in the protocol’s design cannot be transferred to all tokens assets. Some token assets can be manipulated for various reasons. We will do our best to signal risk to users, but like with other permissionless apps, users are the ones who ultimately decide.
Tokenomics of $SILO token – what are its key points? And what could you share about the token distribution model?
Holders of $SILO tokens own Silo DAO and control its assets. In the beginning, governance is the only utility built into the token, however, the community can work together to design the right token model that aligns the interests of users, developers, and other community members.
We are distributing 10% of the total supply in the public auction. Almost all circulating supplies will come from the genesis token auction for the first 6 months. By doing so we aim to decentralize the protocol and foster a strong community around the DAO.
And finally – what is the roadmap for Silo Finance for the times ahead?
After our token auction on December 6, we plan to go through two security audits and a few rounds of community code review before we launch by the end of January 2022. We have an ambitious plan for 2022 but we first need to make sure we get the fundamentals right.
