FAQs
What is Decentralized Finance (DeFi)?
Decentralized Finance (DeFi) refers to an emerging set of financial protocols, platforms, and projects built on smart contract blockchains. DeFi protocols inherit the properties of the underlying blockchains, enabling a new type of decentralized financial system that supports use cases such as lending, borrowing, saving, staking, and trading.
What are DeFi lending protocols?
Lending protocols let users lend or borrow assets on smart contract blockchains. In decentralized overcollateralized lending, borrowers lock collateral to borrow tokens. If the collateral value drops below a set threshold, the collateral risks being liquidated to repay the debt.
What are pools?
Pools are smart contracts that connect lenders and borrowers. Suppliers provide liquidity that borrowers can access through overcollateralized loans. Pool characteristics can differ across DeFi lending protocols in several ways, such as technical architecture, risk parameters, governance control, market risk, liquidity profiles, and eligible collateral assets.
What are stablecoins?
Stablecoins are tokens whose value is pegged to another asset, most often the US dollar.
Broadly speaking, stablecoins fall into three categories:
fiat-collateralized
crypto-collateralized
algorithmic
The most popular stablecoins today, USDT and USDC, are fiat-collateralized. USDS, the third-largest stablecoin by market capitalization on Ethereum Mainnet, is crypto-collateralized and backed by a diversified portfolio of collateral, including USDC, ETH, wstETH, WBTC, and RWAs.
What is collateral?
Collateral consists of tokens that users deposit into a lending pool and that the protocol recognizes as eligible collateral. After supplying an approved token, a user gains the right to borrow other approved tokens. Borrowing in this way provides liquidity and allows users to unlock capital without selling their tokens.
What is the pool utilization rate?
The utilization rate measures how much of a pool’s supplied liquidity is currently being borrowed (total outstanding borrows). Supplied liquidity refers to the assets deposited by lenders that the pool makes available to borrowers. Total outstanding borrows are the assets that borrowers have withdrawn and not yet repaid.
Higher utilization generally leads to higher rates. In protocols such as Aave, Spark, and Morpho, rates adjust automatically according to an interest-rate model that ties predefined parameters to the utilization level. In Sky, by contrast, borrowing rates are set directly through governance.
What are supply rates?
The supply rate is the yield that lenders earn for depositing liquidity. Although the exact formula varies by protocol and by pool, supply rates generally increase as utilization rises. In Sky, there is no supply rate. Instead, there is the Sky Savings Rate (SSR), explained below.
What is the Sky Savings Rate (SSR)?
The Sky Savings Rate is an automated token accumulation mechanism in the Sky Protocol that compounds supplied USDS over time. The rate is set by Sky governance.
What are borrow rates?
The borrow rate is the annualized interest charged on outstanding loans in a lending protocol. Borrowers pay this interest, while lenders earn a share as yield. In protocols such as Aave, Spark, and Morpho, the rate moves with pool utilization according to each pool’s predefined risk parameters. In Sky, borrow rates are set manually through governance.
Why measure rates across different time intervals?
Displaying borrow and supply rates across multiple time frames, such as one, seven, and thirty days, gives a more balanced view of market conditions. Short time frames can flag sudden rate changes. Medium time frames filter out daily noise yet still capture the impact of market events. Longer time frames smooth short-term swings and show broader trends.
What are liquidations?
Liquidation occurs when a borrower’s collateral value drops too low to secure the loan. The protocol then repays part or all of the debt by selling or seizing collateral, protecting lenders and keeping the system solvent. Exact liquidation mechanics, liquidation thresholds, and other risk parameters vary by platform.
What are the Total Stablecoin Supply and Total Stablecoin Borrow metrics?
Total Stablecoin Supply: The total dollar value of all stablecoins deposited in lending pools tracked by Sphere.
Total Stablecoin Borrow: The total dollar value of all outstanding stablecoin loans across lending pools tracked by Sphere.
What are benchmark rates?
Sphere’s benchmark rates serve as crypto reference rates, offering a clearer view of market conditions by drawing on multiple data sources.
Supply Benchmark: The Sphere Supply Benchmark is the supply-weighted average supply rate across all stablecoin lending markets tracked by Sphere.
Borrow Benchmark: The Sphere Borrow Benchmark is the borrow-weighted average borrow rate across all stablecoin lending markets tracked by Sphere.
Funding Benchmark: An open-interest-weighted average of ETH and BTC perpetual-futures funding rates, calculated with Coinglass data.
What is leverage?
Leverage is the practice of increasing market exposure by borrowing assets against deposited collateral, then using the borrowed funds to enter a larger position than the initial capital alone would allow.
What is the Max Leverage metric?
Max Leverage is the highest leverage multiple a user can open in a selected market, based on the initial borrow amount, LTV, collateral and borrow caps, and available pool liquidity.
What is the Health Rate metric?
The Health Rate metric tells you how safely a lending pool is collateralized. It equals the pool’s collateral value (in USD) multiplied by the liquidation threshold, divided by total debt. A value above 1 means the discounted collateral covers every loan, 1 is the break-even point, and below 1 signals that the pool is undercollateralized.
How can my protocol be integrated into Sphere?
Want to see your protocol featured on Sphere? Connect with the Block Analitica team to learn how we prioritize data integrations.
Email: [email protected]
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