An Update on On-Chain Credit Protocols

This piece provides an update on on-chain credit protocols, which have remained relatively resilient in terms of borrowing activity amidst the volatile markets for the past few months. This is likely because the lending activities on these platforms may be correlated with off-chain activities, giving lenders exposure to assets beyond the crypto domain. Currently, there are three main branches of on-chain credit facilities:  Crypto-collateralized, real-world asset (RWA) collateralized and uncollateralized. This piece focuses on the latter two.

Uncollateralized credit protocols such as Maple Finance and Clearpool have been negatively affected during the FTX collapse, as seen from the default of Auros, a crypto-focused market maker, on its loans. The lending pools saw significant drawdowns in liquidity due to the increased default risk. As a result, M11 Credit, one of the key lenders on Maple Finance, had to intervene to ensure that Auros did not default on its loans and to find a viable resolution for all parties involved.