A brief introduction to 5 new DeFi lending protocols, and discover the general trends affecting the lending space in the next cycle

The DeFi lending environment has changed dramatically over the past few months. This article will focus on a brief introduction of some new DeFi lending protocols, data analysis, and general trends that will affect the lending sector in the next cycle.

New DeFi lending protocol:

• Both dAMM Finance and Ribbon Finance are non-full mortgage variable interest rate lending agreements. They are similar in nature to Aave 's pooling model, where deposits and loans are frictionless. dAMM currently supports 23 assets, Ribbon will be launched soon.
• LULO is an on-chain P2P order book for fixed rate and term lending. Much like Morpho, Lulo closes the lender/borrower spread of the traditional pool-based model and matches counterparties directly.
• The lending protocol Arcadia Finance allows borrowers to collateralize multiple assets (ERC-20 and NFT) into a single vault at once. These vaults are NFTs and thus can form composable second layer products. Lenders can choose their risk appetite based on the quality of the vault.
• The lending protocol ARCx evaluates the historical transaction behavior of the borrower on the chain. The better the history (like no liquidations), the higher the maximum LTV (loan-to-value ratio). So far, the largest loan was issued at 100% LTV. Lenders provide liquidity based on the credit risk of borrowers.

dAMM and Ribbon compete directly with Maple and Atlendis in the institutional (under-collateralized) lending space.

Arcadia, ArcX, and Frax are variations on existing models we've already seen in this space.

Many protocols continue to pursue product verticalization in an attempt to increase moats and value capture.

Frax: Stablecoin, AMO (Automated Market Operations), AMM (Automated Market Maker), Liquid Staking

AAVE: Stablecoins, Undercollateralized Lending, RWA (Real World Assets)

ArcX: Credit Scoring

Ribbon: treasury + loan

Some lending protocols are more focused on catering to long-tail assets (assets with low short-term demand).

On the institutional side, dAMM is the only one that already supports many long-tail assets.

Euler Finance allows borrowing and lending of any asset, some of which can be used as collateral.

AAVE is the clear winner so far, due in part to its aggressive multi-chain deployment - 37% of its total TVL resides on L2 or EVM.

COMP v3 was slow to migrate funds from v2, which was firmly in second place.

Maple is the most popular under-collateralized lending protocol.

Euler and Clearpool are the only two semi-mature platforms that have seen substantial growth over the past month.

AAVE and Compound performed in the middle, with Kashi shrinking the most.

Most of the lending TVL is on the mainnet, but EVM and L2 are slowly gaining market share.

During the next cycle, increased usage and number of projects on L2 will accelerate demand, thereby increasing overall liquidity.

In terms of TVL per category, the overcollateralized model has so far dominated.

Expect this gap to narrow as KYC and ZK-based authentication unlocks new primitives, and more institutional capital comes on-chain.

As far as the lending of blue-chip assets and long-tail assets is concerned, blue-chip assets currently occupy almost all of the liquidity.

Euler is the most prominent protocol focused on long-tail assets with a TVL of less than 5%, mainly due to the opportunity cost of token staking.

Why deposit GRT tokens into Euler when (illiquid) staking can earn much higher APR (10-30x)?

This will change over time as we will see more liquid staking derivatives of web3 and DeFi protocols where tokens can be lent and earn yield at the same time.

Verticalization is an interesting trend across DeFi, as lending isn’t the only area with an increasingly concentrated market share.

Lido, Uniswap, and MakerDAO have very large market shares in their respective categories.

Over time, we may see DeFi (and lending) continue to concentrate its share, similar to how large banks have grown over the past few decades.

There are three reasons: strong network effects, verticalization (turning products into features), and brand moats.

New Potential Lending Experiments:

1) Insufficient mortgage lending based on zk-proof off-chain collateral

2) Loans using social-based NFTs as collateral

3) Lending focused on DAO