The rise in capital-efficient models and protocols made a heavy contribution to the parabolic growth in Defi. Decentralized exchanges and lending protocols made it easier for traders to access all popular assets in the crypto space with deep liquidity. Every major exchange offers a wide range of trading pairs for established assets. This makes margin trading more suitable only for top cryptocurrencies that have dedicated brokers and liquidity pools.
Currently, margin trading is available for traders only on centralized exchanges like Binance. Though users can trade with high confidence, they still have to worry about regulatory issues and other problems falling upon a centralized entity in the crypto-verse. We also know communities are at the forefront of any major development in the Defi space. So it is only right for the public to decide which trading pairs should be available for margin trading.
To overcome these challenges of a limited trading market, Open Leverage Finance is introducing a new protocol for permissionless lending and margin trading. In this article, we are going to take a deep dive into Open Leverage protocol and understand how it’s spearheading in the Defi to help traders create their own margin markets.
About Open Leverage
Open Leverage is a permissionless lending margin trading protocol. Let’s break it down. It is permissionless because anyone can create margin trading markets and inject liquidity to avoid price slippage for traders. As traders need access to more capital, lenders will help in fulfilling their requirements. In return, they receive risk-adjusted returns.
With emerging tokens, there is always risk associated. The low market cap and active market participants increase volatility, making it unfavorable for margin trading. Open Leverage protocol recognizes this problem and looks to seize the opportunity by using risk isolation lending pools. Lenders who carry more risk get more reward in terms of interest.
As Open Leverage operates in a decentralized environment, community members will have an equal say in what markets to create and which trading pairs to add. Anyone can create a lending pool after setting a few risk parameters. Its approval, however, will be decided by the governance system, i.e., fueled by the native token, OLE. Apart from traders, there are two important market participants, lenders, and liquidators, who help facilitate the seamless trading experience for all users.
The lenders can choose which LP they want to support based on the risk-reward ratio. They can even earn OLE tokens and others for participating in many reward programs. In the case of liquidators, they can earn rewards for accurately triggering liquidations. A liquidation happens when the collateral is less than the required capital for keeping the trade afloat.
How Open Leverage Works
The inner workings of this protocol mainly involve capital suppliers, borrowers, DEXs, and isolated interest rate markets.
It starts with margin market creation. Using Open Leverage, one can create a new market with specific or multiple trading pairs in under 30 seconds. Now, this market needs liquidity for traders to margin trade. This is where lenders make their entrance. Lenders can supply stablecoins or direct assets in the pool to earn interest. For example, one can deposit USDT and earn a stable annual yield.
After injecting capital into an isolated interest rate market, the lenders receive LToken, an interest bearing a token of Open Leverage protocol. They can use these tokens to re-stake in other yield programs. So it is a double benefit for lenders who gain exposure to emerging tokens and increase their overall return.
Once the required capital is present in the interest rate market, the Open Leverage protocol uses its smart contracts to automatically execute buy orders of a particular token. For example, we are margin trading on FTM/ETH pairs. The smart contracts will use the collected ETH to buy FTM directly from DEXs like Uniswap. There also won’t be any price manipulation, irrespective of the size of the lending pool, because Open Leverage is using OnDemand Oracles.
Open Leverage was conceptualized by individuals with rich expertise in the traditional finance and crypto industry. The founding team have specialists who have years of experience in risk management, derivatives trading, and blockchain-based financial systems.
They wanted to improve the trading experience for users and give traders a platform to trade any token they wanted without asking for permission. That is when they thought of using aggregated DEXs and margin trading protocols to unlock small projects to the masses.
Everyone in the crypto world is looking to increase their capital efficiency and make more returns. While many protocols do a decent job facilitating it and providing the right tools to traders, they don’t necessarily give freedom to experiment with emerging tokens in different market sectors. This is where Open Leverage can stand out.
As anyone can create markets and gain liquidity without asking for permission, the Open Leverage protocol opens up many trade possibilities for investors and active traders. On top of that, it uses DeFi staking principles to reward lenders and other network participants. So even though we are still in the early stages, we can expect Open Leverage to be a big difference-maker in margin trading by spawning new markets.
The tokenomics part of Open Leverage differs from other margin trading protocols. The total supply of OLE tokens is one billion. And out of that, 55% is reserved for community members. These tokens are not limited to reward purposes. They also fuel the protocol ecosystem by assisting with margin trading, market creation, and lending. Community members can even raise money through OLE tokens by applying for grants.
Market participants can mine new $OLE by lending and triggering liquidations. Revenue sharing programs will also reward fairly. The Open Leverage protocol gives back 46.6% of the revenue made on lending pools to staked $OLE holders.
The margin trading platform completed its first seed round investing, raising a total of $1.8 million. Open Leverage protocol received a great reception from the community as well. The main backers of this investment round are Signum Capital and LD Capital. Apart from these two, many notable investors also contributed financially, such as FBG Capital, IBC Capital, Continue Capital and YBB Foundation.
Open Leverage has made incredible progress since finishing the first round of investment. They recently launched their protocol on the Ethereum mainnet. The team is closely working with early users and community members to fix the UI issues and optimize for a better experience. The testnet had more than 58,000 unique addresses that made nearly 180,000 transactions across 260+ markets. They have also integrated with EPNS to provide real-time notifications on price movements and liquidations.
This launch of mainnet means that the protocol successfully integrated Uniswap V2 and V3. In future, the team aims to lower the fees and remove entry barriers for users. So we will see solutions of Open Leverage deployed on EVM compatible chains like Avalanche and Polygon. There’s also optimism to incorporate Arbitrum in the roadmap.
With the integration of Uniswap models complete, the protocol’s next goal is to improve native token usage across the markets and governance. In 2022, the team is also planning to explore several extensions to the margin trading protocol. Few possibilities are social trading, NFTs with vaults, and limit orders.
While innovating a new suite of products, Open Leverage intends to enhance a positive user experience by increasing the infrastructure of margin trading markets. The end goal is to bring investors, including institutions, to use crypto securities services and derivatives trading.
The market opportunity for margin trading is massive in crypto. Such a protocol like Open Leverage is needed to meet the requirements of many traders invested in emerging projects. Centralized exchanges are not distributing the tokens effectively, and the accessibility problem is being solved. We don’t have to worry about any of these issues with Open Leverage. As it gives back control and allows traders to tap into small-cap tokens, we will see more people lean towards Open Leverage for their margin trades. Considering the growth of the community and finished milestones for Open Leverage, it is without a doubt they will make a big impact in Defi in the coming years.
Born and brought up in India, Karthikeya Gutta is a crypto journalist and freelance contributor for ItsBlockchain. He covers various aspects of the industry with in-depth analysis and research. His passion towards blockchain and crypto ecosystem is mainly because he believes it can really change the world and help millions of people.
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