Decentralized financial protocols (DeFi) have had a significant impact on the cryptocurrency sector, with a total value of more than $271 billion, according to DefiLlama. A very popular category of DeFi services is decentralized borrowing and lending, where users can provide cryptocurrency as collateral and borrow stable coins (or vice versa) to pay daily expenses while investments continue to grow.
Total cost unlocked in DeFi. Source: DefiLlama
Such protocols usually require a difference or difference between deposit and loan rates as a service fee. But there are protocols like Minterest that try to distribute most, if not all, profits to users. Earlier this month, it launched Minterest Moonbeam, a pair of Ethereum-compatible smart contracts, on the Polkadot Network. In an exclusive interview with Cointelegraph, Josh Rogers, CEO of Minterest, outlined the goals of creating a user-focused DeFi platform.
Cointelegraph: Your company claims to be the world’s first lending protocol that takes 100% of the value from interest, term loans, and settlement fees, which are then passed on to users. Do you want to clarify?
Josh Rogers: Traditionally, when you look at the model, when you look at value acquisition, you notice that there are different parties that are the beneficiaries. So, you look at the lending protocols through which the owners/developers earn. You have third-party liquidators who charge a liquidation fee. In particular, you should be aware of term loan fees, which in one way or another can be severe [unspeakable] for society. But it is important to know that the value-added revenue protocol is communicated to all of these different parties. Minterest’s goal is for us to collect all the revenue from these commissions on-chain, in a protocol, and then distribute it to the user community in a way that we think is broader and more inclusive. One advantage of the automatic filtering process is that the protocol fee revenue you receive is more important than anything else, because that fee revenue is usually lost due to the protocol.
CT: So what is the expected return from transferring this profit to users?
John R: Well, I don’t know the answer [laughs]. It is very difficult for me to predict this. But when you think of such a title, if you look at any value proposition in the sector, you will find it in the hundreds of millions of dollars. But interestingly, when you look at the lending protocols, there is usually no relationship between the supply of liquidity, the lending activity and the price of the token. Thus, the value of the token is not related to the performance of the protocol.
We do it when we receive all that commission income. The protocol goes to market and Minterest buys back its tokens and distributes them to users. Now it is not for me to speak, and I want to warn you that I am not trying to make predictions. But if it grabs the headlines, if the protocols are generating $100 million in fees, which we should probably do when it’s $3-7 billion in borrowing, then that means the protocol is spending $8 million a month on its token.. the protocol is sending 820,000 tokens per month under the liquidity system. So if you spend $8 million per month and the price of the token is $10, the protocol can hand all the tokens it sends back, which is unrealistic. If the protocol costs $8 million per month, what is the price of the token? The answer is that it’s over $10. Now, at $40 per token, you buy 50% of the supply of the token. At $80, he bought back 10%, which might sound more realistic.
The answer to this question is in there, maybe more. The purpose and reason, important to the protocol as a whole, is that it can compete with others when it comes to APY. The higher the token rise in rates, the greater the internal APY rate actually charged to borrowers and lenders. This means that it can attract more liquidity, outperform the competition, and have a longer life and relevance.
CT: Why Moonbeam to start your protocol?
John R: Well, two things are important. First, the question is why Polkadot is the first and why Polkadot is so much more than just Solana or Algorand. There are some really strong points about Polkadot that we really like. Minterest was originally built on Substrate – it had its own parachute. But in fact, it all goes back in time.