Channels V2 - the Ultimate Yield-Lending Experience

The upgrade seeks to put as much capital as possible to work for investors.

December 29, 2021

Channels Announces V2 Deployment

Channels, a lending protocol with multi-chain layout and zero security incidents, is announcing the deployment of its V2 contracts.

The main driver for the development of Channels V2 is to improve capital efficiency, by adopting leveraged lending, leveraged trading, and an implementation of Lending Liquidity Yield Aggregation (LLYA) strategy.

This article describes the key innovations that differentiate the Channels V2 from V1.


Leveraged Lending

Mortgage lending is simple: users deposit certain tokens on the platform as collateral and lend another or multiple tokens to make other investments. Leveraged lending is evolved from mortgage lending, in which users deposit funds on the platform and leverage it for liquidity mining on Decentralized Exchanges (DEXes). The limitation of this is that the loaned funds can only be used for liquidity mining.

Channels V2 integrates leveraged lending and mortgage lending into one liquidity pool. This means that users can either over-collateralize and borrow assets, or directly use the leveraged lending function to achieve leveraged mining. 

Such an initiative not only meets the needs of borrowers for flexible use of funds, but can also increase profits through leveraged mining. At the same time, because the shared fund pool has greatly increased the utilization rate of funds, deposit users can obtain higher rewards.


Leveraged Trading

For experienced Decentralized Finance (DeFi) users, it is a very common investment strategy to use a lending platform to go long or short on assets. For example, when you think that BTC will rise sharply in the future, you can pledge your BTC to a lending platform, borrowing USDT to buy more BTC, and then re-pledge the purchased BTC to borrow more USDT to invest in BTC. 

By repeating this process, investors are increasing their investment in BTC. After the value of BTC rises, they can sell the BTC and repay the loan to obtain more profit. The same goes for shorts. There is no essential difference between this strategy and spot leveraged trading, but the process is a bit cumbersome. 

In response to this demand, Channels V2 adds the function of one-click leverage, which is essentially to allocate funds for users to trade certain assets to achieve multiple longs and shorts.

How It Works

For example, Bob has staked $1,000 worth of BTC on Channels. He can use leveraged trading to directly leverage his staking for $3,000 worth of BTC and at the same time add a loan of $2,000. When BTC goes up, he can get 3 times the profit. At the same time, the use of leveraged trading also increases the total amount of funds for users, so the mining rewards obtained by users will also increase. 

This can help meet the needs of people who want to leverage their assets and who want to minimize risks. As shown below:


Lending Liquidity Yield Aggregation(LLYA)

Collateral loans are the oldest financial products which have been limited by geography. Sitting in the blockchain and Defi enables lending to take place across borders, but limitations still exist, in general, these are all over-collateralized loans. 

The over-collateralized lending model has a congenital shortcoming: the value of the user's mortgage token is less than the value of the token that the user can lend, as a result, the capital utilization is unsatisfactory.  

Low capital efficiency is a problem that plagues the entire industry; the overall capital utilization rate of the lending leader Compound is less than 40%. In theory, the value of the collateral is always higher than the value of borrowed assets. For example, when the mortgage rate is 80%, if you mortgage $100, you can only borrow up to $80. At least $20 will never be used. 

In reality, the remaining funds not lent are often far more than $20, or even more than $70. But in fact, the platform may only need to reserve $30 to meet normal user withdrawal needs. These unborrowed and unused funds have not generated any rewards for the platform and users, and have resulted in capital underutilization. 

Why LLYA is Useful

Channels V2 creatively alleviated this problem to a large extent through its original LLYA strategy implementation. The specific implementation method is to use a set of liquidity management mechanisms to allocate part of the liquidity reserve into other platforms in a form similar to a yield aggregator to obtain benefits. 

This is done under the premise of ensuring that user withdrawals are not affected. The farming rewards will be directly given to deposit users, boosting the return rate of funds on Channels. In order to ensure the absolute safety of funds, funds will only be put into reputable DEXes such as PancakeSwap on Binance Smart Chain (BSC). These DEXes must have passed stringent risk analysis to be utilized.

The deployment of LLYA is dedicated to achieve a balance between capital utilization and liquidity: the utilization rate of funds and rewards of deposits will greatly increase while the borrowing interest rate will be left unaffected. This game-changing function initiated by Channels is a major boon for lending products.

The picture below is a comparison between Channels’ LLYA and similar products on Alchemix.


Innovation in DeFi is endless, but there is always a proposition that cannot be circumvented: how to use funds more efficiently. By adopting leveraged lending, leveraged trading, and an implementation of LLYA, Channels V2 offers an upgraded lending protocol to improve capital efficiency. Channels V2 upgrade focuses on improving user's capital utilization rate and helping users to obtain higher returns. The launch of V2 seeks to make Channels a highly desirable DeFi platform for borrowers. While the protocol itself captures more value, it also injects new vitality into the entire DeFi ecosystem.

For more information about Channels, visit the following links:

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