Yes, it is possible.
DeFi loans are typically overcollateralized. ie You have to borrow less than the value of your collateral. For example, if you put $100 value as collateral, the amount you can borrow must be less than $100 (maybe $30-95, depending on the risk profile of the token you borrow). It doesn't make sense to do that if you are lacking capital, which is the usual case in TradFi (eg 10% downpayment for a car).
People who borrow in DeFi are people who already have capital but want more capital (eg. deposit $100, borrow $80, result: $180 to invest), and people who already have capital and want exposure to a more volatile asset as well (eg. deposit $100 USDC, borrow $30 PEPE, result: preserve capital while enjoying short term upside of another risky asset).
Nobody will lend you more than what they hold as collateral because they have no assurance that you will honor the debt.
Then why is it possible in TradFi? The key difference is that in TradFi borrowing, the lender has your collateral as well as lien to the underlying asset (the house / car / business that you are borrowing for). The lender isn't simply dishing out cash with no backup. Whereas in DeFi lending, it is. Think about it this way: the lender has your 10% deposit as well as the share of the item that the loan covers. The total value should be equal to or higher than market value. Isn't that the same as DeFi - overcollateralized?
So we do the same as they do in TradFi - the lender controls the collateral as well as the underlying/borrowed asset, while the borrower can enjoy the upside of both collateral and underlying/borrowed asset (they'll have to weigh expected gains against the loan interest, of course).
- User deposits USDe (eg 100 USDe)
- This 100 USDe goes to Ethena staking contract
- Representative token sUSDe is kept by platform (1st pass yield)
- Platform supplies USDC to Aave or whatever other yield platform (eg 1000 USDC)
- Representative token aEthUSDC is kept by platform (2nd pass yield)
- When User closes loan position, sUSDe and aEthUSC are exchanged back for USDe and USDC respectively
- Both USDe and USDC are in higher amounts than the original
- Platform calculates additional yield minus borrowing costs and sends this to User
loan.mp4
Here we deal with USDe and USDC, both stablecoins. If either one or both of the collateral and the borrowed token is a non-stablecoin, it introduces more risk parameters and there will be the need for a more complicated algo to manage the position for collateral call and liquidation trigger.
- This platform can be expanded to work with any number of other DeFi protocols, in the same logic. Opportunities other than money markets: Liquidity pools, staking/restaking, RWAs etc. Whatever yield the other platforms provide is combined with Ethena yield.
- Looping is possible too. Deposit USDe for 10x Aave position, use that USDC supply to borrow ETH from Aave to restake in EtherFi, use eETH to supply liquidity in Uniswap etc etc. All representative tokens held by our platform.
- Institutions under stricter regulation can use us as a proxy to earn yield from other DeFi protocols and assets while still only directly dealing with stablecoins (USDe or USDtb)