DeFi 2.0: The Future of DeFi Lending with Clearpool
On Tuesday, November 8th, Robert Alcorn, CEO and co-founder of Clearpool, joined an AMA with Shigeo and Conor Bronsdon on Twitter Spaces. You can tune in to the recording here or read the AMA recap below.
- Clearpool is a marketplace for borrowers, versus Aave/Compound, which is a marketplace for assets.
- Clearpool permissionless pools have been highly battle-tested since launching through the Terra/Luna falls, the contagion with 3AC and Celcius, and even now with the FTX insolvency.
- Clearpool differs from other lending protocols due to its innovation, from the single-borrower pool concept to its unique interest rate curve mechanism and many others. It offers complete flexibility to lenders and borrowers so they can manage their risk effectively.
- Regulation will come, and Clearpool is prepared for it. The concept of permissioned pools appeals to large traditional institutions with stricter compliance requirements looking to enter the DeFi space.
- Bear market or not, Clearpool keeps building! Clearpool has already delivered on its whitepaper and will keep innovating new products and features. Upcoming products include the next version of permissioned pools, the upgraded interest rate curve, term pools, diversified/thematic pools and secondary trading.
- What Clearpool has built is highly composable. Anybody can innovate on top of it. Term pools will lead to interest rate derivatives, diversified pools to indexes and index swaps, secondary market trading to credit derivatives such as CDS, and various other products. Hence, Clearpool will develop into an entire ecosystem of products that will begin to resemble a decentralized capital markets infrastructure.
Rob, please give us a brief intro and tell the audience who you are and what led you to find Clearpool.
Sure, hi guys. Thanks for having me, I’m delighted to be here. So my background is actually in traditional finance, and I started out in fixed-income markets about 15 years ago. I started out as a broker actually and then moved into banking. My journey in banking took me through fixed income, money markets, asset liability management, and then finally into repo trading for the last four years of my career in traditional finance.
During that time, around 2015, I was building a robo-advisor as a personal project. I just finished my CFA and was interested in financial modelling, and I built this mean-variance optimizer. I was just playing around with ETF portfolios, which led me to want to build a robo-advisor. As I was doing that, I realized that the infrastructure you need to use is a decades-old, clunky, slow, and very expensive traditional financial infrastructure. Once you create a digital facade for the robo-advisor part, the rest is still very slow, old, and expensive. So I started looking at blockchain to potentially improve the entire stack, which led me into crypto.
Around 2015–16, I did a course at MIT that was mostly based on blockchain, which really got me into this space, and I started buying Bitcoin back then. I met with my co-founder in 2016, Alessio Quaglini, one of the three co-founders of Clearpool, along with Jakob Kronbichler. Alessio and I worked together at the bank back then, and we realized that we had a mutual interest in crypto. Alessio left the bank about a year later to found Hex Trust, a digital asset custodian based in Hong Kong, and we still kept in touch. We were constantly discussing DeFi and finally came up with the idea of Clearpool in late 2020.
So in early 2021, we wrote a whitepaper together, discussed this with some guys we knew and respected in the industry, and collected feedback. And that feedback eventually compelled me to leave my job as a trader at the bank and go full-time into Clearpool. It was around March 2021 when I handed my notice in, and looking back, it was one of the best days of my life.
That’s really cool to hear, and I think that idea of going without a safety net resonates with many founders who jump all in. I guess maybe to set a baseline for this conversation, I’ll kick off by asking why don’t you define for anyone listening what Clearpool is. What does the protocol do, and what makes it special? Then we can dive deeper from there.
Absolutely. We call it a marketplace because that’s really what it is. So we were inspired by protocols like Compound and Aave, but we were trying to solve a pain point they produced for certain borrowers. That pain point was over-collateralization, especially for institutional borrowers in DeFi to have to use 150 to 300% of collateral on their loans. It is very capital inefficient, and we could see that this was becoming a huge pain point for many institutions in that space.
So we noticed a gap in the market, so that was the early conversation we had. We were still inspired by those models, but we wanted to build something that reintroduced counterparty risk, which is the only way you can solve that problem. But, we wanted to make sure that we gave lenders the ability to get compensated for that risk and to be able to manage and hedge that risk. So that’s what Clearpool is all about, it’s a marketplace, but it’s a marketplace for borrowers. And if you look at Aave and Compound, they’re also a marketplace, but they’re marketplaces for assets.
Clearpool is a marketplace for borrowers, so we have institutional borrowers who have to go through a KYC onboarding credit rating process with our partner, Credora. Once a borrower has gone through that process, they have to stake some CPOOL, and then they can launch a single borrower pool on Clearpool, meaning that every pool has just one borrower. When you connect to the app, you can see the marketplace and all of the different borrowers across Ethereum and Polygon. Once that pool is launched, it can be funded by anybody. Anybody with a supported Web3 wallet can connect to Clearpool and select which borrower they want to lend to.
On Clearpool, you literally lend just like you were lending USDC on Compound. It’s the same concept; you select the pool, click supply liquidity, and the difference is that you’re lending without collateral. These loans are unsecured; instead, the borrowers use their credit rating and credit profile to borrow without collateral and pay much higher rates. So if you’re lending stables on Compound or Aave, it’s very low, around 1% at the moment. Whereas on Clearpool, the USDC yield is around 7%, with additional CPOOL tokens on top of that. The yields are between 8–10% at the moment, even a bit higher in the past. So you’re getting compensated for the counterparty risk you exposed to that borrower when you lend.
There are a few cool features that really differentiate Clearpool. First is the single-borrower concept. That’s quite unique and something that we introduced. It’s very important because, as we move forward, that allows us to do some other stuff on top of that concept. When you lend to the pool, you will get that pool’s cpTokens in return. Those cpTokens are specific to each pool, so if you lend to Amber, you’ll get cpToken which is linked specifically to that Amber Pool. That cpTokens is similar to the Aave aTokens or Compound’s cTokens, so it represents the liquidity that you’ve supplied. It accrues the interest rate from the pool, but it also represents the credit profile of the specific borrower of that pool. This is what we refer to when we talk about tokenized credit.
When you and several others lend to the pool, the pool fills up liquidity, and the borrower can draw down on that liquidity whenever they want. This is another very cool feature because it gives the borrowers so much flexibility. There’s also an interest rate curve inside each pool that determines the rate paid by the borrowers and received by the lenders. Again, this is another very unique feature. So if we use an example, let’s say we’ve got 100 lenders who have put $100 into the pool, $1 each. Then the borrower could draw down, say, $85, and there would be 85% utilization. If you look at the curve in the pools, you’ll notice that 85% is where you find the lowest rate in the curve. So this is done for a reason. The first version of the curve was more linear, with lower rates found at lower utilizations. We introduced this new cosine formula into the curve because we wanted to make the pools more efficient, so borrowers will always draw down and maintain it around 85% utilization, where they’ll be borrowing at the lowest rate. So it means that there’s 15% of the liquidity remaining in the pool, so lenders can withdraw their funds anytime they want.
There’s also no locking period; again, this is another cool feature because you don’t see that on other uncollateralized protocols. On other protocols, you’re effectively locked in for a longer duration there, so if the market becomes volatile and liquidity gets sucked out of the market on those other protocols, you are locked in during those periods. On Clearpool, you can remove your liquidity anytime you want, subject to liquidity. But if you do that, and if a few other lenders in the pool do that simultaneously, it pushes the utilization up for the borrower, meaning there’s less liquidity in the pool available for withdrawals. But at the same time, the interest rate increases, so you’re getting compensated for that liquidity risk.
So if you’re one of the lenders remaining in the pool and there’s less liquidity all of a sudden available for withdrawals, but you’re getting a higher interest rate, you might be happy to take that risk, sit there, and take the higher rate. But if you decide to withdraw, you can still do that. There’s still liquidity available for withdrawals, up to 99%. So if that happens like now, with this market volatility due to FTX/Alameda news, many lenders tend to be risk off. We might see either larger lenders in the pools withdrawing liquidity or quite a few lenders at the same time. This can push the borrowers into that 99% of utilization. I’ve been watching that in real-time, and it’s pretty neat to see that it’s working.
You guys just added that status right next to the different borrowing pools, and I saw earlier today that Parallel Capital had a warning status. The lend APR went all the way up to 20-ish per cent, and then it went back to 9.1 because they paid back part of their loan. Wintermute also went on with a warning, and then they paid that down, so they got back to the 9% on the Ethereum side, though I think they’re still in the warning status on the Polygon side. But it’s pretty neat to see how you guys have done that and how it’s actually working in a market like this.
Yeah, it works perfectly. So it’s actually battle-tested through several bouts of volatility now. We launched in March on Ethereum, and pretty shortly after that, we had the whole Terra/Luna collapse that created a lot of volatility and risk-off that we saw happen to some pools back then. Generally, what happens if it goes all the way up to 99%, the borrowers get five days to react. So if you’re a borrower and it hits 99%, the timer starts, and you’ll see a countdown on your UI. You’ve got five days to bring the utilization back below 95% in order to avoid the default state. Most of them do that pretty quickly, as you’ve observed, because they don’t want to pay the higher interest rate.
But we also found many cases when the utilization is around the low 90s; this can attract new liquidity into the pools, and we’ve seen this dynamic many times. So when the interest rate is much higher, but the pool hasn’t reached the warning state, it attracts new lenders to the pool looking to farm that additional yield. The borrowers don’t have to do anything at all in that scenario, so it works both ways. So you’re absolutely right; this is working really well.
We also saw the same thing happen during the 3AC and Celsius events. We’ve also seen it happen to Wintermute, specifically during the hack back then. That was a very interesting time because this was one specific pool and what Wintermute did during that time. They reached out to our community directly and said they would repay into the pool. This will allow you to withdraw funds if you want, so they repaid it down to about 50% utilization. Some lenders then withdrew funds, and then most of them stayed in. Then the following day, they communicated again, saying that they would start optimizing around 85% again, which they did. I think they lost about 30–40% of the sides of their pools through that time, but they started to grow again after that. So people obviously got confidence back that they were solvent, and the pools began to grow again back up to where they were before. So that mechanism is really working well.
We recently introduced the Oracle system, which prices that curve, and we can talk about it later, but what we have is a protocol that is driven purely by the market forces of supply and demand. So if you think about it falls, there’s really just the borrower, the lenders, and the smart contract. That’s all it is, and there’s no intervention from the Clearpool team. There’s no third-party delegate managing the pool or anything like that. It’s just purely driven by the market forces of supply and demand. And now the interest rates curve is also driven through a market process from the Oracle mechanism. So the entire thing is very decentralized, and the only sort of centralized part really is the onboarding of the borrowers. But I think that’s understandable at this stage, and we can make that also more decentralized later on. So we’re really happy with the way it’s gone. We also launched on Polygon in June, and that’s been great as we see a lot more lenders on the Polygon chain because it’s much cheaper to operate there. In general, it’s been a really good start.
Since we’re on the topic of default, what is the process if a borrower does not pay back within that five days and they do go into default? People start withdrawing their funds in a collateralized lending pool, and their collateral automatically gets liquidated. What happens in the case of default with an uncollateralized borrower?
All borrowers and lenders have to agree to the legal terms, and you can see them if you go to the docs section and everything is there. So everyone agrees to this loan agreement. So what happens is each pool has an insurance account, and you can see that when you click on the pool, it’s quite a small amount. We take 5% of the interest which is generated on every block, and we divert that into the insurance account that obviously builds up over time and is quite young right now. So the amount is quite small, but it’s there to build up and compensate lenders in the event of default. It’s also there for another purpose, to provide a starting point for the auction that happens in the case of default.
In the scenario where the utilization goes to 99%, and the borrower doesn’t repay within those five days, the interest continues to accrue to utilization. Utilization continues from 99 to 100 at the end of the five days, the pool will default, and an auction will be triggered. The starting point for the auction is the size of the insurance pool. Let’s take an example. Let’s say there’s the equivalent of $0.10 on the dollar in the insurance pool. The first bid will be there, and then the auction runs. In the auction, you’re bidding for the entire debt of that pool. Anybody can essentially become whitelisted to bid in the auction process. At the end of the auction, let’s say we reach $0.50 on the dollar; that would be the winning bid. There’s a final vote where all LPs in that pool would vote if they want to accept the winning bid. So when the consensus decides to accept that bid, they will get their $0.50 on the dollar, but they’ll relinquish their legal rights to pursue the borrower to the winning bid. And if the consensus rejects the winning bid, they’ll get their $0.10 from the $0.10 on the dollar from the insurance pool, but they’ll retain their legal rights to pursue the borrower.
So this is the default process, and it’s quite unique. We designed and developed it ourselves, but we have the legal documentation supporting that which was designed and developed with Clearpool and a global law firm specializing in this space. So it’s a very robust mechanism and hasn’t been tested yet because we haven’t had a default. But that is the process.
Thanks, Robert, I appreciate that walkthrough, and obviously, we all hope to avoid default as long as possible. One of the ways to do that is through the upfront process of onboarding, where you are validating which institutions have access, and working with your partner Credora to rate these potential borrowers. Can you talk us through what that process looks like and how Credora actually does this rating?
The first step is that the borrower would come to Clearpool and make a proposal to open a pool; in some cases, we might even reach out to them. We have a business development team led by Jacob, one of the co-founders. But either way, we have a borrower keen to open a pool, so we obviously would do our initial due diligence ourselves first. We would have a call with those guys and learn more about them. If we get to that stage and like them, we pass them on to Credora. So the KYC process is quite straightforward, then Credora also does the credit scoring. This involves the borrower providing Credora with their financial statements and also some real-time data. That data comes in the form of read-only API keys for centralized exchanges they’re operating on and DeFi data, which they give the wallets they use on DeFi protocols.
So with all that information, Credora can come up with this credit score. So they score each borrower out of 1000 and have three verticals within that score. Operations due diligence is one, so they evaluate the operational risk of each borrower. They score them on this vertical thing that’s out of 200. And then there’s the financial statement analysis which has a higher weight and evaluates the borrower’s financial statements. Then finally, you have real-time risk monitoring. This is like querying the blockchain for what they are doing on DeFi protocols like, for example, Clearpool, Compound, Aave, or other collateralized protocols and DEXes. And there’s also the CeFi data they get through those API keys from the centralized exchanges that those borrowers might be operating on. So that data allows them to sort of contextualize what they see from the balance sheet and compute things like portfolio, leverage, equity, delta, and all that stuff. They can also almost visualize the balance sheet in real-time based on what they see through these API keys.
Then, they come up with the score. Depending on where you are on that scale of 0 to 1000, that would correlate to a letter score of A, B, or others. It will then feed to Clearpool through an API to see that score on the Credora platform. And providing that score is above a certain level, the borrower could move on to the final stage, which is staking CPOOL before we launch the pool for them. So that’s the process we do right now, and later we want to try to bring the community, or at least the Oracles, into this process a lot more. But for now, that’s how it’s done, ensuring that we’re bringing good quality borrowers through the protocol. As you said, that helps to ensure that we don’t have a situation where we have a lot of defaults, which has been the case so far.
One of the things I found pretty interesting is that if you look at the borrowers, they’re all rated at different credit ratings. But all of their interest follow the same curve. I think I read somewhere that there will be a 3-dimensional curve in the future, where if somebody is rated less than A, that curve will be more expensive for them. The lender could make a little bit more interest loaning to people with a lower credit score. What’s the timeline for that curve coming out?
That’s a good question because the same curve for different rated borrowers actually still works. As you can see, the lower-rated borrowers generally have smaller pools. As a lower-rated borrower, you could optimize it to 87%-88% and pay a higher rate to attract more liquidity into your pool. So having the same curve isn’t really a problem, and it still works. But we realized that we could actually introduce things like credit spreads into the curves and some other factors to create different curves for different rated borrowers. So the curve is already developed and ready to deploy. We wanted to run with the existing curve through the launch of the Oracles and the staking so that Oracles got used to the process of voting on the parameters.
Once we get a few epochs under our belt, we introduce the next version of the curve. This includes credit spreads, meaning that lower-rated borrowers will have a higher curve. It also introduces some other factors, like the pool’s concentration and longevity. So this is where you start to visualize this 3D curve, where the curve will differ for every borrower depending on those factors. So that’s probably coming before the end of the year; as I mentioned, it’s ready to deploy whenever. For now, we keep getting feedback loops from the Oracles. When we feel we’ve got enough feedback, we’ll iterate and change a few things, introducing the new curve at that point.
Yeah, congratulations on the first epoch of this staking! I think around 115,000,000 CPOOL in the first epoch. That’s amazing, as we’re in a bear market.
Yeah, we were really surprised and happy with that. We knew roughly how much CPOOL was staked on the centralized exchanges, which was way less than that. So we were delighted with how that went, and I think three rounds of voting have been completed now, and everything is working well.
What else is on the roadmap regarding new features or pieces you will try to add to what you’re doing right now?
So the biggest thing we’re working on right now is the next version of permissioned pools. When we launched Clearpool, we started speaking to some other borrower profiles. The main permissionless pools’ borrowers are crypto native market-makers/high-frequency trading firms, and the permissionless pools are very well suited to what they do. We are looking for other borrow profiles for permissionless pools as well, but we’re also talking to a number of financial institutions that are now getting into DeFi. They love the permissionless concept and the innovation we have in those pools. However, they are still at the stage where they need visibility on the lenders, as in KYC on the lenders. Their legal and compliance departments tell them they still need this visibility. So we quickly developed these permissioned pools that we have right now.
The first permissioned pool was with Jane Street and Block Tower, so just a single borrower and a single lender. Then there’s the one with Alameda with a couple of different lenders. And we also got several other similar profile borrowers interested in this. Hence, we built a much more sophisticated product for that. It’s actually been built, and it’s now about to go for audit, and we’ll test it throughout the rest of November and into December. Hopefully, it maybe even launch again before the end of the year.
The new permissioned pool will allow those larger institutions to participate in the pool. The borrowers we have in the permissionless pools can also operate in the permissioned pools along with multiple different institutional lenders. So it will allow them to create fixed-term pools with fixed sizes and interest rates and select the assets as it supports multiple assets. Then they will also be able to select from all of the permissioned participants in that space to who they want to give access. So you can either select all of them or only those you want to give access to your pool. Then those guys will receive a notification that this pool has been launched and invite them to fund it, so they can either fund it or ignore it. In a later version, they’ll also be able to counteroffer as well. So if somebody is bidding for USDC 7%, then I’d be able to counteroffer for 8%, for example. But once the pool there has been funded, there’ll be a funding window that counts down so that other guys have the opportunity to fulfil the full size. So either the funding window closes, and the pool then continues onto duration, or the pool gets filled very quickly and continues on the duration once it hits the target size.
So this is very attractive to those types of institutions wanting to enter this space, the ones that want to use the benefits of blockchain DeFi lending and borrowing but want to be dealing with other institutions that have all been fully KYC’d. It’s compliant with their compliance needs, and we’ve got a lot of interest from those guys who have already been using the protocol and some other more traditional financial institutions. They are now starting to dip their toe into DeFi and are very interested in this product. So that’s what we’re working on right now, along with some other improvements to what we already have.
Next year, we have a bunch of new things coming up, and I wrote a thread to touch on a few of these things last week. We’ll have term pools, where the permissionless borrowers can create sub-pools with a fixed maturity. So if you’re lending into a pool, and the borrower creates this sub-pool for one month, you’ll be able to lock your liquidity into that sub-pool for one month and receive a higher interest rate. We’ll also create a secondary market after that. So if you lock your liquidity for one month, but then you decide to get it out a week later, you’ll be able to do that. Not by knocking on the borrower’s door and saying that you want your money back, but you’ll go to the secondary market and sell cpTokens there. So you’ll have cpTokens representing your locked loan, and you’ll be able to go to the secondary market for that and trade those cpTokens.
We will also have diversified pools, where you can diversify across all pools in a single transaction. I think this is very interesting for many retail lenders who don’t want to do multiple transactions but don’t want to put all their eggs in one basket. They’ll be able to lend to one pool and know that that liquidity gets distributed across all pools and get some auto-rebalanced and compounded. And again, the cpTokens that you receive for lending will be tradeable in the secondary market. Then we’re also introducing some derivative products. So what we’ve built right now is very composable. We already see an example with the Idle Finance integration, where they built tranching on top of the Wintermute pool, and I think, now the Folkvang pool as well. We also see Clearpool pop up on a couple of other aggregator platforms; for example, I saw one the other day, and it was called Picnic.
So it’s very composable, meaning anybody can innovate on top of Clearpool and build other products. It also means that we can do that as well. That’s what we’re doing with all of these things that allow us to build things like a term structure of interest rates through the term pools, which will lead to interest rate derivatives. The diversified pools will lead to indexes and index swaps, and the secondary market trading will give us data that can be used to create credit derivatives, like CDS-type insurance products. So all of these things come back to that point that I made at the very beginning that we wanted to create a protocol that not only solved problems for borrowers but gave lenders the ability to manage and hedge risk and all of those upcoming products.
So what emerges from that is not just a lending and borrowing protocol but an entire ecosystem of products that begin to look more like a capital markets infrastructure. The next phase of development beyond that, a couple of years away, we would be thinking about a longer-term capital market style of lending and borrowing. What we’d be creating is the foundation for an on-chain bond market, which would open this space up to a much higher level. That market, in the traditional sense, is measured in the hundreds of trillions, to give you an idea of the potential once we get to that point.
I was actually going to ask later, how do you see more TradFi getting into DeFi? But I think you certainly just answered that question.
Yeah, exactly. Those guys are definitely looking at this space. We’ve been in all of their offices, had the boardroom style meetings, and they all have teams looking at this space full-time. Everyone agrees that this is not something that’s going to disappear; it’s here to stay. Those guys are just at different stages along the way; some are a bit more advanced than others. Jane Street has been trading crypto for a few years, so they’re more comfortable getting involved. There are several similar profiles to them, and they are almost there, if not already there. There are even some investment banks, very traditional institutions, that will also be able to start participating probably next year. So we have to be a bit patient on that side. We know that they’re coming, but it doesn’t happen overnight.
To answer your question, they need to see a level of sophistication because they still have very strict risk mandates. They need to be able to manage their risk, so they need a level of sophistication on the product side that allows them to do that. And we’re building that. We’re also aware that they have heavier compliance requirements, and we’re working on that. That’s why we’re introducing this new permissioned product, which will have a new name. I almost said it there, but it will be announced pretty soon anyway. Clearpool is unlike anything else in TradFi, but there’s also nothing else like it in DeFi either. Apart from somebody who’s copied it, it’s really unique. We built something brand new, something that didn’t exist anywhere before. We leverage the technology to create something new that gives you 10X or more improvement on the traditional incumbent alternative. It’s built in a way to attract regulators and those institutions that are regulated. So we think we’re really well positioned to take advantage of this migration when it happens.
One of the things that really attracted me to Clearpool is the composability you can build upon. It’s built for long-term growth and for developers to see the potential and create things like the Luna ecosystem with the different derivatives they made with Luna. Could you talk a bit about the composability that will create a demand for the CPOOL token? You mentioned in the previous space that it’s potentially deflationary as well. Could you speak into that a little bit about the tokenomics of CPOOL and its utilities?
First of all, we have a very strict emission schedule. We have those LP rewards, so this is something that you have to do right. If we were to remove those LP rewards right now, our overall yields probably wouldn’t be quite as competitive in the market. But that said, we have a pretty strict schedule and a long-term budget, so we’re not going to give away a load of tokens in the early days. So the emissions schedule is in line with our long-term vision. It’s almost been a year already, so we’ve got the rewards emissions for LPs and staking that stretches over the next four years left of that. But we also have the protocol revenue, which is ramping up now. Protocol revenue is used to buyback CPOOL on the market every quarter in the early days right now. We do the buyback, and we burn all of those tokens. So right now, the amount of burnt tokens doesn’t exceed the amount of emissions in the same period, but that will flip later on, and we have that mapped out. Of course, we don’t know exactly what the total TVL will be, but we need to have models and targets for that, which we do.
CPOOL utilities have already been enhanced since we launched Oracle and staking. And with all of these other new products that are coming, that dynamic will continue, so there will be more utilities. The fees generated from all those new products, including the permissioned system, can be paid in CPOOL. It’s a bit like how you might use the BNB token in Binance, where you get cheaper trading fees on Binance if you pay in the token. It will be the same thing on Clearpool, and that will add another utility. All of these new products will generate many different types of fees, origination fees, trading fees in the secondary market, creation fees, diversified pool redemption fees, and all other fees. These will be small fees, but as these will be high-volume products, they will generate a lot more revenue for the protocol.
So those buybacks will be bigger each time, and eventually, we’ll get to that point where the buybacks are bigger than the emissions. Then we’ll start to use some of the buybacks, so we won’t burn all of it and will use part of it to replenish the rewards pool. Hopefully, over time we can remove most of the LP rewards because we feel that DeFi needs to get to the point where we have less of these emissions and more real yield. Clearpool already has that real yield, and we just want to get to the stage where that is the yield. And I think it’s fine always to use the native token in some way to incentivize, but the staking part needs to come from somewhere. When we buy back in the future, we’ll get to the point where, let’s say, 50% is burned, and the other 50% is used to replenish the rewards pool. And this will mean we’ll be able to continue that reward mechanism perpetually if needed.
For people unfamiliar with Clearpool, particularly on the retail side, as Clearpool is mostly made for institutions, there are many opportunities for retail as well. What do you see as opportunities for retail investors to get involved, even if they don’t have millions of dollars?
Permissionless pools can be used by anybody. Anybody can be a lender in those pools, especially on the Polygon chain, as we see people lending quite a small amount compared to other larger deposits there. Many users lend from 50–150$ a month, which is still a lot of money to some people. Everyone can lend to those pools and earn 8 to 10% on that fund, which is much higher than you’d get anywhere else without taking on extreme risk with leverage and other similar things. So it’s very attractive to retail lenders.
When you lend to a pool, you’ll receive CPOOL tokens in addition to the USDC yield. You can claim your CPOOL rewards anytime you want and stake those CPOOL to boost your yield further. So you’ll continue to earn that 10% on the lending position while also getting additional staking rewards of your CPOOL, and the average staking reward is currently around 20%. Moreover, you can do that with literally any amount of money, no matter how small. Later on, staking to an Oracle will allow you to vote on other things on the protocol as well through the governance mechanism.
Awesome! I know you don’t have a crystal ball, but when can we expect the protocol’s revenue to become larger than the CPOOL emissions?
We want that to happen as soon as possible. We’re trying to build and deliver things as quickly as possible, and we’ve done a really good job on that so far. We just launched back in March, and since then, we’ve launched a bunch of new products and features, including the Oracle mechanism and staking. Before the year’s end, we should also have the new permissioned product live. As I mentioned, we already have things like the next generation of the curve ready, so we are building and delivering stuff quickly.
Right now, we know people are still being very cautious. Even as we speak, there’s a risk-off behaviour in the market due to what is happening now with FTX. In general, most people have a crowded opinion that we’re going to be in this bear market for at least another year, perhaps even into early 2024. If that’s the case, we will continue to build, and everything I’ve discussed today will be delivered by then. So we’ll have this ecosystem of products, and everything will be there. I’m sure that will increase the adoption over the next year. When the market starts to grow again and we start to come out of this bear market, it’s probably the point when things begin to change in a big way for Clearpool. Moreover, at that point, many larger institutions will be ready to start operating in this space as well. So we maybe will get to that point within the next couple of years. So yeah, we’re doing whatever we can to ensure that happens faster by delivering all these new product innovations.
By the way, Clearpool has already delivered everything that it said it would deliver in the Whitepaper. So we just continued to come up with new ideas, and we’ll never walk away from this. This is our baby, although it might become more decentralized in the future, the team will always be there involved and continue to innovate and build on top of what we’ve already done.
Yeah. This is a good stress test for a protocol like this. You guys are in the borrowing sector when everybody is going risk-off, the Terra blow-up, and then the contagion with 3AC, Celsius, and everything else. And you guys have gone through it with flying colours. If you guys can get through this bear market in the way it has, then it seems like clear skies in the future, God willing. I feel really optimistic about Clearpool and blessed that I came across it this early. So yeah, I’m really happy that you could jump on and answer those questions. Thanks for working so hard and delivering everything you have on the roadmap and the whitepaper. It gives a lot of credibility to the team and this project, and I’m pretty stoked about it.
Thank you very much, I appreciate those words, and I appreciate you guys setting this up. It’s been great, and we want to do this as much as possible because we’re also focused on growing the community in the right way as well. Everything we’ve done on that side has been organic and has a really good quality. For us, it’s about quality over quantity, and I think we have a great community already, and it’s great to see you guys part of that. Please keep helping us spread the word, and it’s been a pleasure to talk to you guys.
Awesome, it’s been a pleasure. For everyone’s listening, I just want to throw some numbers out. We’re looking for yields a lot of times, and if you want to get stable yields on USDC, Clearpool is a vehicle that offers some of the highest yields in DeFi because of the uncollateralized aspect of the platform. I think the highest I saw today was 14.21% by a new pool that opened up — Bastion trading. It’s a new pool; new pools normally have a higher yield. Then it goes from that 14% down to 8.54%, and you compare that to Aave and Compound, which is right about 1%. It’s like 8X higher than anything that you can get out there. Regarding the token itself, I looked through some of the early round seed investing and added it all up. The average for the early seed investors was $0.025, and now it’s trading at around $0.06. It’s only 2–3X above the early investment money that went in, so it’s still really early in the protocol.
And if you buy it, you can stake it to the Oracles on the Clearpool site on the Ethereum side. The average stake yield right now is 19%, so it’s one of the best things I found out there. And look at the potential of the things they’re building in the future. It deserves a good look, so this is not financial advice or anything like that. Do your own research, but in my opinion, it is one of the greatest risks to reward investments when looking at the future. So I really appreciate your time, Robert and Connor; thanks for putting this together. I look forward to having many more spaces as the protocol develops and more products are introduced. So thank you so much, and we will see you next time.
Clearpool is the first decentralized marketplace for unsecured digital asset liquidity, where institutional borrowers can create single-borrower liquidity pools and compete for uncollateralized liquidity directly from a decentralized network of lenders. Liquidity providers on Clearpool earn attractive yields, with pool interest rates enhanced by additional rewards paid in CPOOL — the protocol’s utility and governance token. Clearpool LP tokens, called cpTokens, are the building blocks for a system of tokenized credit and on-chain risk management.
Clearpool is building the architecture to facilitate flows between traditional capital markets and the burgeoning DeFi ecosystem. The protocol is backed by leading investors from both traditional venture capital and blockchain, including Sequoia Capital India, Arrington Capital, Sino Global Capital and Wintermute.