Why this crypto VC bet big on DeFi cross-chain liquidity tool Unbound Finance2 min read
Paul Veradittakit, a partner at crypto venture fund Pantera Capital, explained why the team invested in cross-chain liquidity protocol Unbound Finance in a post yesterday.
“Unbound presents a promising model for the open flow of liquidity across a myriad of DeFi products, laying the path for the highly-composable, cross-chain DeFi of the future,” he stated.
The Unbound DeFi train
Launched earlier this year, Unbound is aiming to create capital-efficient products that are both native and composable to the DeFi ecosystem. The liquidation-free collateralization platform allows users to borrow interest-free loans against liquidity pool tokens as collateral.
Through strategic partnerships, the project is building native bridges to allow cross-chain transfers of its stablecoin and other synthetic assets.
Unbound will offer a suite of products to unlock liquidity from a diversity of automated market makers (AMMs) on different blockchains, including synthetic assets collateralized by liquidity provider tokens (LPTs), new liquidity pools cross-derived from multiple AMMs, financial instruments to compound yields, and returns, and more.
The protocol’s first flagship product is the UND stablecoin (pegged to the USD, collateralized by LPTs), which enables LPs to access some of the liquidity they have already locked into liquidity pools on AMMs like Uniswap. LPs can deposit LPTs (which they receive from AMMs in exchange for supplying liquidity) to the protocol and can take out loans in UND in exchange.
‘Explosion’ of liquidity
As per Veradittakit, the ‘AMM’ model is largely responsible for the explosion of “liquidity” on ETH. However, as the liquidity is locked up on the protocols, it becomes largely useless as the holdings cannot be used elsewhere.
But Unbound tries to solve this. “At a high-level, Unbound generates new synthetic assets using liquidity provider tokens (LPTs, which are given to liquidity providers in exchange for supplying liquidity to a protocol like Uniswap) as collateral,” explained Veradittakit, adding:
“These LPTs are generally not tradable but still represent a significant amount of value, meaning that without a derivative component, their value cannot be realized until they are redeemed for a share of the liquidity pool that they represent.”
The Unbound protocol currently supports AMMs like Uniswap, Balancer, MooniSwap, and Sushiswap. Strategic partnerships with EVM-compatible public blockchains, like Binance Smart Chain, Polygon and Harmony will support AMMs like PancakeSwap, DFYN, and SeeSwap, among others.
It is backed by leading venture capitalists in the blockchain ecosystem, including Pantera Capital, Arrington XRP Capital, CMS Holdings, Hashed, LedgerPrime, LD Capital, TRGC, ArkStream Capital, ZeePrime Capital, Future Perfect Ventures, Brilliance Ventures, Woodstock, Coin98 Ventures & GenBlock Digital to name a few.
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