π€Integrated Liquidity Markets (ILMs)
Greater capital efficiency, continual rebalancing, and a seamless user experience.
Integrated Liquidity Markets (ILMs) are an innovative approach to make borrowing more capital efficient across DeFi. ILMs are automated growth strategies that leverage a user's collateral to execute a specific pre-determined strategy i.e. looping. The first ILM strategy is a wstETH/ETH looping strategy. Additional ILMs can be easily spun up and new ILM strategies and markets can be proposed through the Seamless governance process.
How do ILMs work?
When you deposit assets into an ILM, all actions involved with the ILM automated growth strategy are securely embedded within smart contract code, ensuring trustless and tamper-proof execution. Since the assets have a predetermined use and purpose, users benefit from more capital efficiency, more automation, and less collateral needed.
Letβs walk through a few steps to illustrate how the 3x leveraged wstETH/ETH looping strategy works:
A user deposits wstETH into the ILM and receives an LP Token signifying their position in the strategy.
ETH is borrowed in accordance with the strategy which will eventually be used to magnify a users wstETH position. This ETH is borrowed from the supply side of the Seamless Protocol lending & borrowing markets.
This borrowed ETH is swapped on a DEX for additional wstETH β achieving a 3x leveraged ratio.
As wstETH generates staking fee rewards, the price of wstETH will grow relative to the price of ETH. As wstETH grows it will naturally fall outside of the targeted 3x leveraged ratio β when this happens, additional ETH will be borrowed and swapped for wstETH automatically. This process of continuously monitoring the leveraged ratio of debt to equity is called rebalancing and is fundamental to ILMs.
Central to this strategy is the Looping Strategy, a foundational component of the ILM framework, which recursively leverages deposited assets as collateral to amplify exposure to the underlying asset.
Aptly named "looping," this ILM strategy entails a series of steps wherein user collateral is pooled and deposited into a lending pool, debt assets are borrowed against the collateral, exchanged for the collateral asset on an external decentralized exchange (DEX), and subsequently supplied back to the lending pool. By continuously rebalancing to maintain a desired collateral ratio, the Looping Strategy optimizes capital efficiency while facilitating seamless asset management.
Note: It is important to emphasize that Seamless Protocol simply comprises a set of autonomous blockchain-based smart contracts deployed on the relevant blockchain network, operated directly by users calling functions on it (which allows them to interact with other users and/or engage in trading or other activities in a multi-party peer-to-peer manner). There is no further control by or interaction with the original entity which had deployed the smart contract, which entity solely functions as a provider of technical tools for users, and is not offering any sort of securities product or regulated service nor does it hold any user assets on custody. As such, we should not utilize any term similar to "yield", "yields", "real yields", "profits" because any token or other rewards which users earn from the protocol arise solely out of the user's involvement in the protocol by taking on the risk of interacting with other users and/or providing liquidity, and charging a fee for this work (e.g., trading fees, liquidity provider fees).
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