Lending Pools

Lending pools in CygnusDAO.

CygnusDAO consists of individualized pools. As opposed to other protocols like Aave or Compound, there is not one lending pool, but different lending pools according to each collateral, with its own interest rate curve. It has some benefits and some downsides, the most notable:

1. Downsides: Liquidity can be scattered across different pools, which means some pools might not have enough available cash for borrows.

2. Benefits: Risk is compartmentalized across the protocol. If a liquidity token price decreases sharply and liquidations are not fast enough, the other pool lenders/borrowers remain unaffected.

UniswapV3 separates between stable, volatile and exotic pairs for example to allow users to set their trading fee. The lending pools follow a similar approach, but the interest rate model for each pool is unique, dictated mainly by the APR of the collateral (trading fees).

The individualized pools system protects lenders who are more risk averse than other lenders. Some lenders who are more risk-tolerant might decide to lend their funds in volatile pools, where the APR's might be higher but the liquidations are more frequent, and there's a higher chance of loans going underwater. For example, someone may not want to allow users of SHIB to borrow their USDC since they don't trust the token or think there are high chances of the loan going underwater (since it is very volatile and liquidiators may not come in time). As such they can deposit in pools which hold more stable assets such as ETH, Matic, etc.

To ensure a healthy launch, CygnusDAO will be responsible for whitelisting pools in the first phase. As Cygnus evolves, it will facilitate into a full permission-less protocol, where users can create any lending and borrowing market.

Each pool has a Lend APR and Borrow APR. Lend APR refers to the interest rate accrued by the Lender while borrow APR refers to the interest rate paid by the LPs.