Permissionless Listing / Isolated Markets

I’ve had an idea in the back of my mind for the past month now, so let’s bring it to light!

Wouldn’t it be great to support the lending and borrowing of any sort of crypto asset? I have yet to see support for this in DeFi.

The main challenge to this idea is that every new market on Compound presents risks to the whole protocol. What if one token added as a market experiences a rug pull, price manipulation, or some other similar situation? Liquidations and losses can occur across all of the markets on Compound.

So how can we mitigate or contain these risks while simultaneously offering permissionless listings? Isolated markets!

Right now when you deposit an asset as collateral on Compound (granted > 0% collateral factor), you can borrow any other asset supported by Compound.

With isolated markets, we can use pairs, where the collateralization of one asset allows for the borrowing of ONLY the other asset for the pair.

Let’s consider an example: isolated GRT/USDC market. Are you a holder of USDC and you believe GRT is a safe asset? Lend out your USDC in this pool. What if all suppliers borrowing USDC against GRT get liquidated? The pool would be composed of mostly GRT. How comfortable are you as a USDC lender? If you’re not comfortable with this scenario, then simply don’t participate in this market. If you are comfortable with this, then you have an opportunity to make interest on your USDC at the rate of this specific isolated market.

The risk of permissionless listing is then contained to each and every isolated market.

The benefit of permissionless listing for, say, stablecoin lenders is that they have MANY more opportunities to make interest on their stablecoins. Theoretically, the more risky the non-stablecoin asset is, the higher the APR will be for lending stablecoins. The stablecoin lenders more skilled in risk assessment and management will then have much more opportunity to make higher returns.

There are most likely still risks to the overall protocol involved with this idea, as well as various challenges. Let’s discuss them here!

Going forward in this thread, let’s refer to the current Compound markets as cross markets and the new idea as isolated markets.

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yes yes yes and yes. How can I help? Love the idea!

Great idea… I had the same idea a while back:

And it’s been live for a while:

Happy to talk about licensing the code to Compound.

Interesting, maybe compound could be a Kashi strategy? if I am saying that right?