CoinMarketCap takes a deep dive into a new automatic market maker — Unbound.
With an estimated $100 billion locked in various DeFi protocols across half a dozen blockchains, AMMs have helped to catalyze an explosion in liquidity across different balkanized blockchains.
Liquidity provider (LP) tokens represent a share of the liquidity locked in AMM pools and are used to redeem the underlying liquidity tokens. But until very recently, this has been the extent of their utility.
Driven by the aim of increasing the capital efficiency of AMMs, Unbound Finance is building what it describes as “the next money lego” — by helping liquidity providers make better use of their LP tokens.
What Is Unbound (UNB)?
The intent of the protocol is to build and provide products that are both native and composable with the broader DeFi ecosystem. The first tool from Unbound allows users to mint synthetic assets, including the UND stablecoin and uETH (Unbound Ethereum) using their LP tokens. These tokens are fully liquid and can be minted cross-chain — helping to break down the barriers between blockchains.
Founded by blockchain enthusiast Tarun Jaswani, Unbound is backed by leading blockchain VC firms including Pantera Capital, Arrington XRP Capital, CMS Holdings, Hashed, LedgerPrime, TRGC, LD Capital, ArcGlobal, Future Perfect Ventures, ZeePrime Ventures and others. These value-adding backers were selected to help deliver Unbound to its target audience — DeFi users.
UNB, the platform’s native utility token, is primarily used for platform governance; on the other hand, the platform’s native stablecoin, UND, is minted by staking LP tokens.
How Does Unbound Work?
The protocol locks the LP tokens and enables users to take out interest-free crypto loans in the form of UND — a decentralized, cross-chain, ERC-20 stablecoin that is soft-pegged to the U.S. dollar (USD). Users can also mint the Ethereum-pegged uETH, and eventually a variety of other synthetic assets.
Users can use the loaned capital to purchase other coins, provide liquidity or access staking initiatives without missing out on the potential gains realized by their collateralized funds still locked in their liquidity pool of choice.
Unlike other collateralized lending platforms, Unbound does not employ a liquidation engine, and will not liquidate user collateral even during periods of extreme volatility. Instead, Unbound operates a SAFU fund, which will be used to buffer users if their collateral value drops below a certain threshold.
Beyond this, Unbound’s user interaction flow can be briefly split into three directions:
What Makes Unbound Unique?
Unbound Finance provides a flexible, non-custodial platform where AMM liquidity providers can compound their earnings by leveraging their LP tokens to mint UND and uETH.
The Unbound governance token, UNB, confers voting rights to holders and encourages participation by way of contributing to the decision-making behind issues and proposals.
The platform earns revenue by charging its users a minting fee which varies for different pairs of assets and can be changed by voting through community governance.
Unbound Finance provides crypto users with the first-ever debt-free liquidity provisioning system. The protocol is characterized by several unique features, some of which include:
The protocol charges no interest on loans taken out by the liquidity providers. To redeem their loan, they simply repay the amount of UND or uETH they borrowed to retrieve their collateral (i.e. their LP tokens).
Unbound completely nixes the liquidation engine seen with more collateralized lending platforms. As a result, users do not need to concern themselves with the potential liquidation of their collateral. Instead, Unbound uses SAFU, an emergency insurance fund, to secure the collateralized assets of borrowers during so-called ‘black swan’ events.
At Unbound, loans have no fixed repayment deadline. Users can unlock their collateralized assets any time by paying back the outstanding debt — without any restrictions.
The UND Stablecoin
Unbound Finance’s first product is the cross-chain, decentralized stablecoin known as UND. It is an ERC-20 token soft-pegged to the US dollar and backed by user deposits.
Secured Price Oracles
Unbound is working to establish strategic partnerships with projects building across multiple blockchains. In line with this, it is also constructing cross-chain bridges to enable UND and other synthetic assets to be transferred across multiple blockchains.
How Does Unbound Compare With Its Competitors?
Unbound is an upcoming blockchain startup designed to increase the overall efficiency of the DeFi ecosystem by providing liquidity-backed collateralized loans to crypto users. As such, it is competing with a number of competitors including Maker DAO, Compound, Synthetix and Nexo.
The following table briefly compares Unbound with its competitors (courtesy of Unbound).