CoinMarketCap takes a deep dive into a new automatic market maker — Unbound.
Automated market makers (AMM) have revolutionized the way decentralized finance (DeFi) is seen and used. Both permissionless and trustless, they are widely considered to be one of the major building blocks for the effective execution and exchange of programmable money.
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)?
Unbound Finance is a decentralized, cross-chain protocol that provides an aggregator layer over existing AMMs (including Uniswap, Balancer and Sushi) with a view to enhance the utility of liquidity provision (LP) tokens — more specifically, by improving the yields they can be used to generate.
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.
Built on the Ethereum blockchain, Unbound Finance went live with its first testnet in December 2020 and launched its final Zeta testnet in April this year. It plans to eventually launch its mainnet on blockchains like Ethereum, Binance Smart Chain, Polygon, Harmony and Solana — adding support for the most popular AMMs at the same time, such as Uniswap, Curve, MooniSwap, PancakeSwap, Sushi and Raydium.
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?
Commonly known as “the DeFi treasury for liquidity pool tokens,” the Unbound protocol increases the capital efficiency of AMMs by using LPTs as collateral, making them liquid by minting a variety of synthetic assets.
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:
Minting: AMM liquidity providers lock their LP tokens as collateral in Unbound’s smart contracts and in return mint synthetic assets such as UND (pegged to USD) and uETH (pegged to ETH). Unbound uses the loan-to-value (LTV) ratio to calculate the size of loan the user can take out against a certain value of their collateral. The protocol also charges a small one-time variable minting fee at the minting step.
Unlocking: The Unbound protocol lets users withdraw their collateral (i.e. their LP tokens) by paying off the amount they borrowed. Unbound does not charge any interest on the loan. Users are free to pay back the debt anytime and their collateral will not be liquidated if the market moves against them during the loan period. Users can choose to redeem the entire loan or a fraction of it at their convenience.
Earning: This protocol feature allows users to earn rewards by adding liquidity to UND pools. Users get a percentage of the minting fees as rewards for staking in these pools and are free to withdraw their liquidity at any time.
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:
Debt-Free Borrowing
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).
Liquidation-fFee Collateralization
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.
Perpetual Borrowing
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
The platform uses a geometric mean of highly secured price oracles including Uniswap’s TWAP (Time Weighted Average Price) and Chainlink to obtain accurate asset price information. It also makes use of the “block limit lock mechanism” as a security measure against flash loan attacks and other related cyber-attacks. This is a protection mechanism that forces users to wait for at least three to five blocks of confirmation to again interact with the smart contracts. Besides this, the protocol has been subjected to a series of audits to further enhance the security of the platform.
Cross-Chain Bridges
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).
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