Why TownSquare
TownSquare is designed to address the need for more institutional and retail-friendly access to higher DeFi yield, which is hindered by the architectural limitations of existing chain-by-chain DeFi lending protocols and the yield primitives built on them. We will provide detailed descriptions as to how TownSquare's cross-chain model compares to the existing lending protocols and highlight how it enables scalable credit markets with unfragmented experiences for institutions and retail users.
Limitations of the Existing Onchain Money Markets Architecture
Multichain fragmentation: contract pools are siloed between chains, and assets between chains have zero interoperability, restricting yield access and capital utilization.
Collateral restrictions: flexibility in collateral support is limited by slow, inefficient DAO governance of the established protocols, resulting in a restricted market experience similar to that of a permissioned tradfi, broker-based market.
Capital utilization & capital efficiency: capital efficiency of lending liquidity is optimizable via high-yield strategies. The absence of leverage yield strategies of the underlying asset primitive limits liquidity utilization on existing money markets.
Systemic risk: loans often pool different collateral assets together, risking the whole loan with the volatility of one of the assets.
Inefficient risk pricing: the yield and lending rate often do not reflect the volatilities of the underlying asset.
TownSquare's Crosschain, Composable Yield & Leverage Market
TownSquare addresses the limitations of onchain yield and leverage market by introducing several architectural innovations that make institutional & retail access to onchain opportunities easier:
Crosschain native architecture: Contrary to the chain-by-chain deployment of lending pools of the multichain model, TownSquare's lending market is natively built on cross-chain messaging protocols, allowing both single-chain & cross-chain lending and borrowing.
Yield asset collateral support: TownSquare marketplace bootstraps liquidity for underlying assets for yield primitives such as PT, LST, & LP tokens (e.g. MON for aprMON, SOL for PT-jitoSOL, ETH for PT-mETH), without the hassle of long & inefficient DAO governance to start with.
Multi-strategy lending vaults: Lending liquidity is natively leveraged by loop strategy vaults curated by TownSquare. Idle liquidity in the lending vault can be allocated toward strategies of third-party yield sources
DeFi: lending markets, liquid staking vaults, LP pools etc.
CeFi: HFT strategies, straddle strategies, funding rates etc.
Optimized rates: Lending liquidity is composably leveraged by yield strategy vaults to offer superior yield for lenders.
High-resolution risk management & higher LTV: Each loan can support single-asset positions or multi-asset positions, offering complete risk isolation for users, allowing for higher LTVs.
Advantages of TownSquare
Collateral flexibility
Emerging yield assets such as PT, LST, & LP tokens represent high-yield, low-risk opportunities in DeFi based on correlated assets that eclipse the yield opportunities in tradFi. Collateral support of these yield primitives is a fundamental prerequisite to enabling high-yield strategies such as leveraged looping.
Unfragmented chain experience
Asset owners on Chain A can directly borrow assets on Chain B to access yield opportunities without giving up their exposure of assets on the origin chain. This is an increasingly needed feature as often users are getting yield from an asset on Chain A (e.g. USD0++ on Ethereum) while another asset on Chain B is offering an attractive yield (e.g. fragSOL on Solana). In this case, bridging of the Chain A asset is not possible as USD0 does not exist on Chain B.
Bringing institutions to onchain assets
Institution-run strategies such as straddle options and funding rate arbitrage are increasingly adopted yield sources. Structured products such as Ethena's USDe and Theo's straddle vaults bring these institution-run products onchain.
TownSquare lending vaults support these institution-backed onchain products in allocation strategies for passive lending rates.
High-signal use cases
Passive lending vaults for liquidity providers
Leveraged yield strategies with yield-bearing assets (e.g., PT, LSTs, LP positions)
Structured credit products
RWA financing & refinancing
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