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CryptoEconomic Research

Maple Finance: Creating a Decentralized Credit Market

Maple provides undercollateralized lending for borrowers and fixed income opportunities for lenders transparently on-chain.
by James ChungJanuary 13, 2022
maple finance

Maple finance provides a capital efficient option for institutional borrowing and fixed income lending in decentralized finance. Unlike most lending and borrowing platforms today that offer collateralized borrowing and variable rates, Maple provides undercollateralized lending for borrowers and fixed income opportunities for lenders transparently on-chain. Lenders are able to generate sustainable yield by lending to highly vetted institutional borrowers while pool delegates launch, manage, attract capital and commit loans for lending pools upon developing their own investment strategy and underwriting process for determining creditworthy borrowers.

What’s wrong with the DeFi ecosystem today?

The lending sector in DeFi has been a tremendous success. However, prominent platforms such as Aave and Compound do not extend credit because they require all loans to be overcollateralized. The benefits are obvious in keeping the platforms solvent but it is inefficient as it precludes features of the credit markets like trust and reputation.

Maple Finance solution

A decentralized credit market that improves the capital efficiency of lending markets by allowing more capital to be loaned out for every dollar deposited. Expanded credit solve the need for overcollateralized loans and allow institutions to reinvest efficient capital into their business. Also, unlike Aave Arc, which is a permissioned pool for only institutional investors, Maple allows anyone to be a liquidity provider and earn yield from lending to prime corporate borrowers.

How does it all work?

Participants: There are several ways you can participate on the platform. You can either lend, stake, borrow and/or become a pool delegate.

Lenders can seek yield opportunities by depositing capital into lending pools that are managed by Pool Delegates for institutional borrowers. On top of the interest, lenders can earn Maple’s native token $MLP as lending rewards.

Pool delegates leverage the protocol and intermediates between lenders and borrowers. They seek to attract capital while also providing funding to a network of premium borrowers through their strategy

and underwriting process. They negotiate loan terms and perform diligence on borrowers by reviewing reputation, expertise and performance to evaluate the term of the loan. Once both parties agree on interest and collateral ratio the loans are funded from the managed pool. Pool delegates earn establishment fees (paid by borrowers) and on-going fees (% of interest yield received).

maple finance profile 1
Source: Maple Finance

Institutional borrowers access efficient financing on-chain by leveraging their reputation to borrow under-collateralized without liquidation or margin calls. Borrowers pay establishment fees for conducting due diligence which may include hedge funds, exchanges or market makers.

Stakers provide insurance or pool cover by staking $MLP tokens into pools to provide loss capital. These tokens liquidate in a scenario where a default occurs. Stakers earn a percentage of interest earned by the pool from borrowers and MPL staking rewards.

Activity amongst participants:

  • Pool delegates must be whitelisted prior to establishing a lending protocol. In order to be whitelisted, they must go through the Maple governance approval process. Once approved and profile and strategy are created, the lending pool is deployed. Delegates must provide minimum stake cover ($100,000) while stakers may add additional pool cover where desirable.
  • Both lenders and stakers would review the delegate profile and provide liquidity and pool cover where desirable.
  • Borrowers would also create profile, loan terms and submit request for quote (RFQ) on Maple for delegate review.
  • If there is interest on borrowers’ proposed loan terms by the Pool delegate, further diligence are conducted.
  • The loan contract would be launched by the borrower once the terms are agreed upon by both parties allowing the delegate to fund the loan.
  • Borrowers draw down loan payment, pay interest and stake collateral over time while the establishment fee is drawn down separately and sent to the delegate and Maple DAO. This would happen until the final repayment occurs upon maturity for delegates to claim.

Mechanism design and tokenomics

  • MPL is the Maple Finance governance token. It enables holders to participate in governance, earn fees and stake to lending pools. Holders can also passively participate in governance by delegating their voting rights. The token inherits both the ERC-20 and the ERC-2222 token standard for profit distribution from the Maple treasury.
  • Maple finance has a max supply of 10,000,000 tokens of which 500,000 (5% of total supply) was distributed via Balancer liquidity bootstrapping pool lasting 72 hours. The bootstrapping pool, which is an adjustable balancer smart contract, was utilized for initial distribution and price discovery of new assets. The approach creates a constant selling pressure over a fixed time period, leading the price to drop in the absence of demand.
  • The last private raise was in March 2021 with a fully diluted valuation of $50M or $5 per token.

Maple token distribution

maple finance profile 2
Source: Maple Finance

Maple Token Allocation

Team has 2 year vesting schedule and seed investors have a 1.5 year vesting schedule.

DeFi Protocol Profile for Maple Finance
Source: Maple Finance

Macro view

  • The market value has been volatile since the launch of their token, reaching $47 million as of January 12, 2022. However, the total value locked has been steadily increasing reaching $500 million which demonstrates strong momentum and demand for on-chain credit, DeFi’s missing lego piece.
  • Maple finance is one of the few players in the space leveraging blockchain to introduce decentralized credit markets for both sides of the market. The benefits of transparency and auditable loans provide for better price discovery and terms for borrowers over time.
  • On-chain credit is an efficient use of capital compared to other lending primitives such as Aave and Compound. Instead of over collateralized borrowing, under-collateralized borrowing and credit allows for optimizing terms and reinvesting capital in one’s business. Allowing borrowers direct access to capital markets, rent-seeking gatekeepers are removed.
  • There are plans to expand the number of pools and product offerings to increase liquidity provided and total loans originated. Focus will be on protocol utility, interoperability and usability. These should all serve as a catalyst for growth in 2022.
Further Reading

Cryptofunds, market makers, and trading desks can interact with DeFi and Web3 protocols with MetaMask Institutional

MetaMask Institutional offers unrivaled access to the DeFi ecosystem without compromising on institution-required security, operational efficiency, or compliance requirements. We enable funds to trade, stake, borrow, lend, invest, and interact with over 17,000 DeFi protocols and applications.

Found this research useful? Connect with the ConsenSys Cryptoeconomic Research team at [email protected]

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