Nolus Unveiled: Streamlining Crypto Lending with DeFi Leasing

Decentralized finance (DeFi) is carving out a revolutionary path by granting users access to a suite of powerful financial instruments and markets traditionally reserved for the upper echelons of the financial industry. Among these innovations is crypto lending, a process allowing participants to leverage their crypto holdings as collateral to secure loans. Despite its potential, the nascent DeFi lending landscape is beleaguered by inefficiencies that hamper its broader adoption and functionality.

Stepping into the fray with a promising solution is the Cosmos-based DeFi suite, Nolus Protocol, which introduces a novel approach aimed at refining the existing model—DeFi Leasing.

The Essence of DeFi Leasing

Drawing parallels from the conventional finance sector, DeFi Leasing adapts the familiar model of leasing to the decentralized world. Traditional leasing frameworks enable customers to obtain assets by making an initial payment that is a fraction of the asset’s value, utilizing the asset over the lease term, and ultimately assuming full ownership upon settlement of the agreement.

Nolus Protocol reimagines this arrangement for the digital age, allowing users to deposit cryptocurrency and receive financing up to 150% of their initial deposit. This groundbreaking approach not only facilitates greater exposure to a range of tokens but also adeptly addresses the onerous over-collateralization requirements prevalent in crypto lending.

Addressing the Core Issues

The prevailing DeFi lending mechanisms are heavily reliant on over-collateralization—demanding users to lock up a more substantial value in crypto assets than they intend to borrow. While this model reduces the risk of liquidation in the event of a downturn in the value of the collateralized assets, it is not without its shortcomings.

Nolus Protocol’s DeFi leasing innovation significantly diminishes the need for such over-collateralization by affording up to 150% financing of the initial deposit, effectively reducing the collateralization requirement by a factor of three. Additionally, it departs from traditional liquidation practices that pose considerable risks to borrowers, instead opting for partial liquidations. This nuanced approach liquidates only a part of the collateral whenever there’s a price depreciation of around 30%, offering borrowers a buffer to recover their position. Nolus claims that its DeFi lease model results in a 40% lower liquidation rate compared to the market average, all things being equal.

Moreover, Nolus stabilizes the borrowing landscape by locking interest rates at the inception of the DeFi lease smart contract, thus shielding borrowers from the volatility of fluctuating interest rates—a prevalent issue in traditional DeFi lending paradigms. The leased assets, alongside the down payment, are securely stored in the smart contract, serving as collateral while affording users the flexibility to employ the leveraged assets in approved yield-bearing strategies. Upon the full settlement of the loan, the user regains unencumbered ownership of the underlying assets.

Operational Mechanics of the DeFi Lease

The DeFi Lease mechanism empowers Nolus users to augment their exposure to preferred cryptographic assets significantly. Users initiate the process by depositing a cryptocurrency of their choice into Nolus, procuring up to 150% of the initial deposit as a loan in their desired cryptocurrency. This scheme facilitates an effective leveraging of their holdings up to one and a half times their initial commitment. Both the initial deposit and the loan amount are settled into a smart contract, which serves to mitigate the potential for margin calls.

The repayment of the loan can either be executed through additional capital injection or by leveraging the appreciation of the assets within the DeFi Lease agreement.

Nolus champions a cash-basis operational model, compensating lenders with real yield derived from the leases. The accrual of interest is scheduled for collection every 16 days, with automatic deduction from the borrower’s collateral in instances of non-payment, further distributing the collected interest to the lenders.

This model ensures the prompt distribution of accrued lease interest to lenders while strategically capping new deposits when fund utilization falls below optimal levels, thereby safeguarding favorable returns for incumbent lenders. Notably, Nolus advertises an annual percentage yield (APY) on stablecoins ranging between 8 to 12%, with an additional 12% rewards disbursed in the protocol’s native token, NLS, underpinned by buybacks from the protocol’s revenue streams.

In Conclusion

Nolus Protocol’s introduction of the DeFi Lease model into the DeFi space represents a calculated step forward in tackling the inefficiencies that currently beleaguer crypto lending. By innovating on the principles of traditional finance and adapting them to fit the digital asset context, Nolus may well pave the way for a more accessible, efficient, and robust DeFi lending ecosystem.

*Disclaimer: The views and opinions expressed in this analysis are strictly for informational purposes and do not constitute financial, investment, or other forms of advice.*