Protocol Overview
Non-technical, high-level overview
Silo is an isolated-markets lending protocol. Smart contracts have a modular design.
A Silo is an isolated money market that supports only two assets, the bridge asset (e.g. ETH) and a unique token. When created, all Silos share the same collateral factors that can be configured for each Silo.
The bridge asset (e.g. ETH) connects all Silos in the protocol. For a collateral token to borrow another, the process requires creating two positions, both are denominated in ETH so they approximately cancel each other out. The user’s exposure to ETH is minimized but the exposure to the long and short is maximized.
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Any token can be used as collateral to borrow another
Silos provide similar risk isolation as Liquidity Provider (LP) pools on AMMs such as Uniswap. Similar to Uniswap v1, each Silo v1 has the same parameters for Loan to Value (LTV), Liquidation Threshold, Liquidation Penalty, and Oracles. And like Uniswap, a Silo can be created for any asset. Users can borrow up to 50% of the value of their collateral. Collateral will be liquidated when the debt position is 62.5% of the collateral. This high liquidation threshold reduces the risk of any silo becoming under-collateralized during a liquidation event. All factors can be adjusted on a Silo.
Interest rates are set dynamically based on an 80% target utilization for collateral. With dynamic rates, Silos continue to increase or decrease the borrow/lending rate of an asset until 80% of the collateral is utilized. This optimizes utilization while also maximizing liquidity. Dynamic rates are a meaningful improvement on the linear utilization models of Aave, which have an upper bound on the interest rate at 100% utilization that has occasionally left depositors unable to withdraw their deposits at will.
The network’s native token that is used to participate in the governance of the protocol. Token holders will comprise a DAO, which will oversee the protocol-controlled assets and adjust collateral factors, among other functions.
Last modified 1yr ago