Fluid: Shaping Financial System of the Future

Intro

DeFi is evolving and going beyond the limits of the traditional financial system which looks a bit rigid and conservative for being a part of our future. Decentralization is creating a new reality for us and the next generations right now, and that explains why the market is full of multiple Dapps, narratives, and protocols.

Fluid, an Instadapp’s brainwave, is one among others to become a part of Web 3.0 history and make DeFi more accessible and user-friendly lending and borrowing space for everyone who needs it.

Instadapp: Overview & Key Products

One of InstaDApp's highlights is implementing the DeFi Smart Layer (DSL) and DeFi Smart Accounts (DSA) that helps to integrate various DeFi protocols, so users can manage their positions in lending protocols in a one-click manner, reducing operation steps and gas costs. 

The protocol supports six chains: Ethereum mainnet, Polygon, Avalanche, Arbitrum, Fantom, Optimism, and Base, providing features like token cross-chain transfers.

Source: Instadapp website

Source: DefiLlama

The protocol offers several options to interact with the DeFi:

Avocado

Avocado is a Web3 and absolutely decentralized wallet. Top up the USDC gas tank and easily interact on any network. Simplify gas management and focus on getting things done. 

Key features:

• All transactions on Avocado go within your unified USDC gas tank. You can pay all gas fees in USDC using USDC from any network;
• Built in access to the best DEXes and Bridges from all networks on Avocado;
• A multi-chain USDC gas tank. You can top up once and transact everywhere;
• Secure and quick management of all your multi-chain digital assets from Avax to Polygon zkEVM.

Instadapp Pro

Instadapp Pro is a platform for the guru of the DeFi. It helps to:

• Boost your revenue with advanced built in strategies leverage and unwind in 1-click manner;
• Refinance between different DeFi protocols and use ‘Automation’ to make the most of your investments;
• Try advanced DeFi management.

Instadapp Lite

Instadapp Lite is the easiest way to deposit to earn interest on some of the most popular DeFi assets on the market. It could be an option for you if you’re seeking for how to: 

• deposit funds into your Strategy Vault and forget about it;
• maximize gains by reducing the number of transactions, saving on gas, automating fee collection;
• simplify the overall process of getting into the DeFi,  setting up and actively monitoring a DeFi strategy.

Fluid

Source: Instadapp website

What Is Fluid?

Fluid is a lending protocol developed by Instadapp’s experienced team. It combines the functionality of the most popular platforms Aave, Compound, Uniswap, Maker and Curve, providing users with unprecedented flexibility and efficiency in managing their funds.

The protocol's killing feature is to accumulate liquidity and overcome fragmentation. 

Key Features

Source: Instadapp’s blog

• Highest LTV (Loan to value). Borrow up to 95% against ETH;
• Better rates for lenders and borrowers;
• Advanced security by isolating risk, automated limits and protocols class;
• Opportunity to earn with smart collateral and smart debt;
• Lowest liquidation penalties (about 0.1%);
• Lowest liquidation gas (3-4 times less comparing to other protocols);
• Capital optimization due to no segregation concept.

Source: Instadapp website

Lending Protocol

A lending market is popular among users for the simplest and most habitual use cases of finance. Fluid removes all the complexities related to borrowing and provides a Web2 UX. It’s worth noting that there are 2x-5x more Lenders than there are borrowers. (look at the chart below) So, there is a friction between these two groups of users. Fluid eliminates that. Fluid’s borrowing protocol can be introduced without disrupting lenders, thereby enhancing efficiency. 

Generally, all advancements are made for the borrower’s side. Thus, Fluid solves this by providing users with a long term safe yield while also benefiting from any new advancements on the borrowing side without having to move any assets. 

The Lending protocol has simple rewarding methods and follows the ERC4626 standard and is gas optimized, allowing simple and cheap integrations for developers.

Source: Instadapp website

DEX Protocol

Smart debt empowers you to turn your debt into a productive asset by using debt as a liquidity and allowing traders to trade on top of it. Instead of having a token as liquidity, the debt is used as liquidity. Every trade rather than increasing the token liquidity from swap fees, smart debt reduces debt from swap fees.

Users borrow from a smart debt pool with available vaults. Example: a vault as ETH collateral & smart debt of USDC/USDT. Users deposit their collateral and then borrow against it. The borrowing initiates through the smart debt pool and a share of the overall pool is allocated to that user.

• borrow rate generally remains stable ranging from 3-5% (depending on how the rate curve is being managed);
• trading APR varies from day to day depending on the trading activity. 

This allows users to get the best borrow rates in the market. In some scenarios they might even get paid to borrow making Fluid the perfect place to manage your position.

Source: Instadapp website

The DEX protocol introduces smart debt and smart collateral. That was made for users to utilize their debt and collateral as liquidity for trading purposes. 

The v1 of DEX protocol will be similar to a combination of Uniswap v2 and Uniswap v3. V2 may be based on Uniswap v4.

Smart collateral pools are like any AMM pool, where users can earn from trading fees while simultaneously lending their collateral & borrowing against it. 

Smart debt pools can be imagined as an inverse of any AMM pool, allowing borrowers to use their debt as liquidity and having a discount on debt through trading fees.

By using these features, users will discover the best rates in the ecosystem to earn more on their collateral and receive discounts on their debt. 

Governance

INST acts as a governance token for Fluid. INST holders will have a responsibility to decide all components of it.

Main responsibilities break into:

• Regulating rate curves, fees and configurations for tokens in the Liquidity layer;
• Determining protocols configurations and allowance to interact with the Liquidity layer;
• Setting automated limits for protocols;
• Deciding on rewards on Lending protocol and Vault protocol;
• Setting up Vault's Configuration.

Is Fluid Safe?

The biggest issue of any financial protocol is its security. The simplest way so far is to use traditional finance tools such as daily spending limits.

Some popular DeFi protocols adopt something similar with debt ceilings and other limitations. Thus, MakerDAO applies a debt ceiling to minimize their risk exposure to various assets. We observed a similar approach extended with Aave v3 isolation mode, as well as with Compound v3 and Aave v3, which imposed restrictions on the supply amount limiting the risk of supplied assets. 

Fluid's Liquidity Layer implements Automated Limits, which dynamically adjust the debt/collateral ceiling every block when funds are nearing limits. This allows organic borrowings to process, while restricting any out of the blue whale moments. 

So, if there were code vulnerabilities or economic manipulation on a protocol of Fluid, the Liquidity Layer forbade unusually large and sudden borrowings and withdrawals, limiting losses.

Liquidity Layer is a simple contract that holds all the liquidity from all the protocols and makes sure that assets are secured. This feature ensures that any instabilities within these protocols will result in minimal losses for affected users.

As protocols and assets become established on Fluid, the borrowing and supply limits expand, while newer protocols can be kept on very tight limits. This allows the secure addition of new protocols without introducing additional risk to the overall Liquidity layer.

The parameters for automated ceiling are divided into:

• Base ceiling;
• Max ceiling;
• Rate;
• Limits in %.

Final Thoughts

Fluid can be considered as a climax of Instadapp’s deep background in developing on-top DeFi protocols. Fluid introduces new and more capital-efficient ways for building innovative DeFi protocols providing better utilities to users such as high LTV, better rates, and productive debt. 

Thanks to Fluid you can turn your debt into a yield-producing asset with smart debt, reducing borrowing costs and creating new opportunities for traders to liquidate at minimum fees. Fluid’s built-in DeFi strategies, leverage, swap collateral assets and debt swap make it possible for you to maximize your crypto investments.

The protocol removes fragmented liquidity issues to make Fluid the financial layer of the future and becomes the base layer for future financial systems.

Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.