Coinbase’s L2 Base Gets Undercollateralized Lending with Seamless Protocol
Seamless is a community-owned liquidity market with a unique borrowing model.
Key Takeaways
- Only authorized smart contracts or vaults, called "Borrowing Strategies", can use Seamless' undercollateralized method to borrow assets.
- Users can also borrow ETH and USDC using traditional DeFi overcollateralization.
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Seamless, a community-driven liquidity market, has announced the launch of its undercollateralized borrowing market on Coinbase’s layer-2 solution, Base.
Undercollateralized lending allows people to borrow money without needing to leave the full value of the loan as collateral or backup. This allows borrowers to optimize their capital, freeing up funds for other uses rather than locking them up as collateral like traditional DeFi lending pools.
Seamless Protocol aims to facilitate undercollateralized lending through a new DeFi primitive called Integrated Liquidity Markets. In this system, only authorized smart contracts or vaults called “Borrowing Strategies” can borrow assets. Restricting loans to trusted smart contracts reduces risk for LPs as they know exactly how their assets are being used in contrast to open-ended platforms like Aave and Compound where anonymous borrowers can use assets however they like.
“Borrowing Strategies are like single-purpose loans, such as home, auto, or school loans—the supplier knows exactly where the liquidity is being used, and the borrower is unable to use it for different purposes,” said a Seamless Protocol contributor.
These Borrowing Strategies were created by Seamless to generate revenue from sustainable streams like decentralized exchange trading fees, liquidity provision, and liquid staking tokens like Lido’s stETH.
While other undercollateralized DeFi lending methods utilize on-chain identity and credit scoring systems, Seamless asserts these are vulnerable.
“As we’ve seen with projects like WorldCoin, on-chain identity is still highly gameable (person A purchases person B’s on-chain identity), and reputation scores are just a transient number without much real life “stick” consequences for negative actions,” commented a contributor from Seamless.
Building on a solid foundation, Seamless Protocol’s code draws from the proven Aave v3 contracts, which currently secure over $2.2 billion in crypto assets. This means that users can also borrow assets in an overcollateralized fashion, starting with USDC and ETH markets.
To incentivize early adopters, Seamless is introducing “OG Points.” These can be earned by depositing funds, borrowing, and staking their LP tokens. In the future, OG Points can be used to gain access to exclusive NFTs and giveaways.
Seamless Protocol is entirely community-owned and has not raised any funds. The project was developed by a collaboration of contributors and advisors from Coinbase, Uniswap, CertiK, Maple Finance, Ampleforth, and others.
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