Onchain Credit Marketplace

Debt DAO’s marketplace enables open, permissionless, and competitive credit creation. Lenders, from stablecoin providers to DAO treasuries to TardFi hedge funds, compete to offer borrowers the best rates. Borrowers compete to build the best onchain business and get the lowest interest rates possible.

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The protocol is implemented as a set of persistent, non-upgradable smart contracts; designed to prioritize censorship resistance, security, and self-custody. Once deployed, each marketplace contract will function in perpetuity with 100% uptime, assuming the continued existence of the Ethereum blockchain

All of our deployed contracts are permissionless and immutable by design. These design decisions were inspired by Ethereum's core values and our commitment to the ideals of permissionless access and immutability as indispensable components of a future in which anyone in the world can access financial services without fear of discrimination or counterparty risk.

Permissionless design means that the protocol's services are entirely open for public use, with no ability to selectively restrict who can or cannot use them. Anyone can swap, provide liquidity, or create new markets at will. This is a departure from traditional financial services, which typically restrict access based on geography, wealth status, and age. The protocol is also immutable. No party is able to pause the contracts or otherwise change the behavior of the protocol in any way. It is worth noting that the Arbiter role is currently a trusted counterparty and oracles are always a central point of failure so the configuration of a marketplace contract is critical to its security. Oracles also define which tokens are allowed as collateral and lending.

Debt DAO focuses on building the infrastructure for novel credit products. This open and permissionless marketplace connects onchain Borrowers and Lenders via smart contracts to facilitate the entire credit life cycle - borrower diligence, origination, repayment, default, liquidation, closing, secondary trading and all the other steps involved in a line of credit facility. While our contracts can be used standalone as one-offs, its better to aggregate everyone’s deals into a “market” collection for easier viewing. Debt DAO Marketplaces are defined by having immutable default parameters for critical infra such as oracles and/or dynamic requirements like token gating. Markets with default parameters are inherently more secure since borrowers and lenders are assured that critical components will remain consistent across deals on the platform and into the future.

We are hoping that groups within the DeFi community will come together to form certain self-regulations and isolated markets that will facilitate specific types of deals. At the moment, the LineFactory contract acts a simplistic market contract by defining the oracle, arbiter, and a dex aggregator address that all revenue is traded through. If you are interested in running your own marketplace please reach out at @debtdao

Once multiple markets have started forming, aggregators will link them together onchain or offchain and display relevant info like oracle uptime that affect the inherent risks of each market. Borrowers and Lenders always that the ability to choose which marketplace that they want to use which mitigates these risks. At the moment there is only 1 marketplace live at debtdao.finance. We use Chainlink’s FeedRegistry as an oracle aggregator with sanity checks and decimal formatting on all responses.

A Service Provider is an independent actor in the onchain credit marketplace providing value-add services to facilitate primary and secondary market activity at any stage in the end-to-end credit lifecycle. Here are a few examples.

Teams with significant data and borrower and other risk analysis skills. Risk analysts help lenders in the Marketplace to quantify the risks present in lending. Factors to account for in potential borrowers include smart contract security, business models, and financial performance.

A risk analyst could also use our Generalized Cashflow Model built on Credmark to verify project cashflows in the process of setting loan terms.

Examples: Credora, Gauntlet Network, Chaos Labs

Teams that build Dune dashboards for revenue streams, compile operating expense reports, or other financial analysis.

Examples: Credmark, DeFi Llama, DeepDAO, Token Terminal

Parties advising and being mandated to allocate onchain capital from, for example, DAO Treasuries.

Examples: Llama DAO, Karpatkey

Parties with excess capital that they want to lend out. These could be stablecoin providers, money markets, DAOs with large treasuries, crypto credit funds, or individual whales.

Examples: Maker, Frax, Aave, Gnosis, ENS, Olympus, Maven11...

On top of new DeFi primitives (i.e. the originated debt instruments) we envisage that Service Providers will create derivative products in the Marketplace (e.g. fixed-rate bonds and structured notes) earning lenders immediate profits and freeing up their capital. Debt DAO's contracts would tokenize and make the debt fungible to facilitate this process.

Examples: Notional, Element.fi, Galleon DAO, Index Coop, BarnBridge, Superform...

The primary role of insurance and coverage protocols is to mitigate risk from protocols, their tokenomics and smart contract bugs. Lenders can take out policies to protect themselves against hacks, defaults, or other events that might lead to financial losses.

Examples: Nexus Mutual, Sherlock

Developed by the Yearn team and launched under CREAM branding, Iron Bank was the first protocol that displayed how you can have trustless undercollateralized lending using programmatic protocol controls over drawdowns and repayment. Unfortunately for Iron Bank this programmatic access was exploited on their first borrower’s protocol and they lost $37 million. This concept of knowing that a borrower must repay debt according to its own smart contract logic became the foundation of Debt DAO’s Spigot product for trustlessly collateralizing onchain revenue streams which is the basis of Debt DAO’s credit marketplace (although we stole our Spigot code from Set Protocol not Iron Bank).

First crazy idea that made Debt DAO lead dev go “oh shit, I should learn how to make this stuff”. Tokenizing debt positions and atomically transferring debt across protocols and accounts using flashloans was a big inspiration to making me want to become a solidity dev.

ETHLend had a pretty similar user flow to Debt DAO because we used it as a basis for our UX. With their research as a starting point we then built out a different feature set and contract architecture for our target market - DAOs and revenue-based financing.

Eventually ETHLend decided a pool model was better than peer-to-peer. ETHLend is now Aave. Debt DAO is also following ETHLend on this, launching our pooling layer on top of our p2p market as our second product.