Lending on SYNC

SYNC Network explained what does it mean to be a lender and what are the benefits of lending.

Lending on SYNC is ultimately about providing liquidity to another user, the borrower. As a lender, you can create a claim on the borrower’s CryptoBond as collateral.

🔹Lend for returns

As a lender, you set the loan value, the interest, and the duration of the loan. That means you are in full control of your risk. This piece aims to explore some of those factors in more detail and see how they play a role in lending strategies.

The first one is the most obvious. Lend to other people to make a financial return. We think of this strategy as a competitive alternative to being a liquidity provider on Uniswap. On the one side, you avoid the risk of impermanent loss on the other side, SYNC offers a significant advantage for your funds over Liquidity Provision.

Key Points:

• Make a strict formula for the loans you create in order to minimize risk. Making loan offers on CryptoBonds is free.
• The Loan to Value (LtV) ratio is how much you offer as a loan amount, compared to how you and the current market value that CryptoBond. This is your most important tool for managing your risk, alongside the duration of the loan. If you set the loan value too high, you effectively offer the borrower an option to exit their CryptoBond. Remember! The borrower doesn’t need to pay this loan back, in which case you will get the CryptoBond in return.
• Shorter duration loans encounter less risk due to potential market fluctuations.
• Make sure you feel comfortable that you could sell that CryptoBond at a price that would recoup your loan or even make you a profit by selling.
• Longer loans (30–90 days) can be very profitable but are best offered on CryptoBonds that have demonstrated their value.
• Make offers in either wETH or DAI (or both) depending on what exposure you want and how it fits your overall portfolio.

🔹Lend to Acquire

This approach will likely be used by our extensive group of CryptoBond collectors, but it could also be a very powerful way for e.g., larger organizations to acquire CryptoBonds in an extremely cost-effective manner.

All the same risks apply, so we will keep section 1 in mind while trying to explain how this approach to lending is different.

Key Points:

• They are not predominantly trying to lend to people for a financial return when they pay them back, but for the opportunity to maybe acquire CryptoBonds at a predetermined price if the borrower defaults.
• First and foremost, this means they should only make loan offers on CryptoBonds they’d like to acquire, and only make loan offers for an amount that they’d be delighted for the borrower to default on. Their goal is acquisition.
• Loans that do pay back pay earn them fees, which will be used to pay for the CryptoBonds they eventually foreclose, making new acquisitions cheaper, free or even profitable over time.
• In this approach, they have a strategic advantage to pure financial lenders. They’re happy to accept a lower return in return for an option to foreclose that asset if the borrower doesn’t payback. Following this strategy, you may want to offer more competitive interest rates in order to get offers accepted on valuable pieces from borrowers and “win” the loan.
• Remember that SYNC is a p2p marketplace, so the borrower can and will most likely accept the most competitive offer available to them.
• They generally want to make offers on any item they’d like to acquire quickly and be in the market most of the time. This is the dominant strategy they foresee bond whales incorporating.

🔹Lend safely to friends

A little known and described element of SYNC is friendly lending. Due to the nature of the platform, you can make any loan offer you want. Interest-free loans between friends are easy and safe on SYNC

Key Points:

• As a secure alternative to private off-the-books lending to friends. While many of them have lent ETH to other CryptoBonds users and we generally trust friends, unforeseen or unfortunate things can and do happen.
• SYNC offers you a safe and easy way to lend to friends for free, but with one or several of their CryptoBonds as security in case of anything unexpected. Don’t risk capital and friendships when there is no need to.
• This approach could also be used by patrons that want to lend a larger amount to an artist or a project but feel more comfortable having security for the loan. Despite SYNC only offering up to 90 day loans at the moment, you could easily stagger 2–4 overlapping loans in a row, each paying back the previous and extending the loan period. Maybe to fund a big project?

All loans on SYNC are subject to a 5% success fee on the interest paid by the borrower to the lender, but if there was no interest paid due to the loan being interest free or the borrower defaulting, the platform doesn’t take a fee at all.

What is SYNC Network?

SYNC Network is a DeFi platform centered around the creation of collectible tradable financial NFTs called CryptoBonds. SYNC Network is currently developing its v2 platform. Version 2 will incorporate Multi-Chain and Multi-DEX support. Whereas SYNC currently operates on the EVM (Ethereum Virtual Machine).

📰 INFO:

https://medium.com/sync-network/lending-deep-dive-12389d65e1fc