Users on Abax will be able to shape the future of the lending protocol via a DAO governance system.
In this article, we'll be covering Abax Finance, a lending protocol building on Aleph Zero that utilizes a smart contract system that allows users to seamlessly lend and borrow cryptocurrencies by using the power of blockchain. In this article, I’ll be going over the current problems and risks with today's lending protocols, how Abax Finance plans to stand out from the crowd with its unique approach, the team behind the project, and so on.
This article will divided into 6 parts: The Problem, The Solution, The Team, The Partnerships & Roadmap, The Tokenomics, and The Conclusion, so make sure to begin from the start (The Problem) before moving on to the other parts. With the intro out of the way, let's get started!
The Problem:
In today's world of DeFi lending protocols, two types of users exist: lenders and borrowers. Lenders are individuals who are allowed to earn a dependable passive income stream by depositing their hard-earned cryptocurrencies into a lending pool and securely lending them out, whilst borrowers are individuals who are given these cryptocurrencies against their collateral or through the innovative flash loan mechanism.
Lenders can have it pretty easy, as they can earn a steady flow of passive income from interest rates, while borrowers are exposed to more risks due to them having to guarantee a higher value of collateral than the amount borrowed.
This can all happen because most DeFi lending protocol is decentralized and noncustodial, meaning that there are no traditional evaluations like credit scores or income certificates to determine a safe loan amount. Therefore, because of this, DeFi loans are mostly overcollateralized, and to put this into perspective, borrowers can get 50% or 75% of the amount they put up as collateral.
However, it's not all sunshine and rainbows from here, as there are some inherent risks when operating a DeFi lending protocol. Below are some of the prominent cases as to why the risks are there:
Faulty Smart Contracts - Having faulty smart contracts for any Dapp is, by far, the biggest problem in DeFi today. Having faulty and unaudited smart contracts can open the doors for malicious actors to swoop in and steal user's assets by exploiting the smart contract's vulnerabilities i.e., poor coding and draining the liquidity/lending pools.
Not Having Regulatory Compliance - In DeFi today, regulatory compliance is mostly non-existent (although efforts are being made to be more compliant), and because of this, they don’t offer the same protection that everyone sees in the traditional finance system now i.e., if a bank goes insolvent, customers can rest assured that they are being protected by getting a partial amount of their deposits, which is around USD 250,000 (amount varies in each location). For DeFi lending protocols today, if one were to be hacked or to go insolvent, the users aren’t protected and, therefore, their funds may be lost and will never be returned.
Flash Loan Attacks - In a flash loan attack, a couple of malicious actors can borrow a large sum of one token and swap it for another so that they can manipulate the price of both tokens. Additionally, they can deposit their newly purchased tokens into another vulnerable DeFi lending protocol to borrow large amounts of the token they originally swapped, and once done, they can use a portion of that token to pay off their flash loan and keep the rest for their gain.
Poor UI / UX - For most DeFi lending protocols, having a seamless and clear UI / UX isn’t set as their main priority, and due to this missed opportunity, this can sometimes lead to users accidentally and permanently losing their funds simply by interacting with the wrong function because the UI is so poorly designed and not human friendly.
With all of this to bear in mind, it makes anyone wonder if there is a DeFi lending protocol out there that can mitigate these risks, has a simple and seamless UI that’s friendly to users, has audited and secure smart contracts and, most of all, can guarantee a users safety of their digital assets by being regulatory complaint.
The Solution:
To put it simply, Abax Finance is a Lending Protocol that utilizes a state-of-the-art lending pool design as well as secure and audited smart contracts to allow a trustless, permissionless, and seamless experience of lending and borrowing for different cryptocurrencies to happen on the Dapp. They’ve also created a unique governance system for the protocol, with the team calling it ‘Abax DAO’, and this allows the decision-making process and protocol upgrades to be done by the community via on-chain votes. Here’s what users can expect to see on the Abax Lending Protocol Dapp:
Lending Pools - The main function that runs the show on the Abax Lending Protocol is their lending pools, which are pools that contain and represent a collection of different cryptocurrencies for users to deposit or borrow from and are entirely run by smart contracts.
Lenders / Depositors - Lenders can interact with a smart contract by supplying their cryptocurrencies to each respected lending pool and by doing so, they can contribute to the liquidity of the protocol. In return for doing this, lenders can earn passive income via interest on their deposited assets, as borrowers pay interest on the amount they borrow.
Borrowers - Borrowers are users that require funds and to do this, they collateralize their digital assets and borrow from the lending pools. Borrowers can access funds either in an overcollateralized manner, where they provide more collateral than the borrowed amount, or in an undercollateralized manner (aka flash loans) where they repay the loan within a single atomic transaction.
Interest Rates - The interest rates for deposits and debts on the Abax Lending Protocol are dynamically determined by the supply and demand within each lending pool. As for the rate, this can be done when each asset is calculated based on the utilization rate and the asset’s risk profile.
Governance - The Abax Lending Protocol is collectively managed by the Abax DAO. The Abax DAO allows ABAX token holders to participate in multiple and different proposals, such as the decision-making process, proposing and voting on changes, protocol upgrades, and parameters of the protocol. By doing this, it enables the community to have a say in the evolution and governance of the lending protocol now and in the future.
Abax is paving the way to become the most secure and regulatory complaint lending protocol in crypto today! (And FYI, this is an old logo that Abax doesn’t use anymore)
Abax Finance also boasts that they have some unique features that make them a trustworthy and powerful lending protocol to be used by thousands of users, which are:
Regulatory Compliance - A core problem with any DeFi protocol is the lack of regulatory compliance, and it seems like Abax is on the right track to make it more trustworthy. Compliance with relevant regulations is a key goal of the Abax community, and with a focus on compliance and transparency, they aim to establish Abax as a trustworthy and reliable partner for both lenders and borrowers.
User Interface tailored to your needs - I think we can all agree that UI is one of the most difficult aspects to perfect of any Dapp and get the most adoption from a user base. Luckily, Abax has got you covered! Whether you’re an experienced blockchain user or new to the technology, the Abax Lending Protocol Dapp provides an intuitive and user-friendly way to utilize all the features of the platform.
Cross-chain Compatibility - If you thought that the Abax Lending Protocol was only going to stay natively built on Aleph Zero, then you are wrong! The Abax Lending Protocol will allow for cross-chain compatibility once Aleph Zero finally bridges to Polkadot and other ecosystems.
Innovative Position Risk Model - Liquidation might seem like a scary idea, especially for users who want to have a lower risk when using a lending protocol. Luckily, the Abax Lending Protocol automatically calculates the maximum debt for each user based on the user's collaterals and debts that built position. Each asset contributes differently to the position depending on its volatility and if the health factor is higher, the risk factor is less.
Flexible Borrowing Rules - Do you want your borrowing experience to be as flexible and seamless as possible? If so, then the Abax Lending Protocol might be the answer that you have been looking for! It’s highly customizable at its core, and to create the best borrowing experience possible, it allows borrowers to choose from many Market Rules, which regulate how assets can be borrowed. These market rules will be used by Abax DAO to manage the protocol risks and give users the best possible borrowing opportunities tailored to current market needs.
Fair Interest Rate Model - Interest rates play an important role in any lending protocol, as they try to give an honest interest rate to lenders and borrowers, but sometimes, some lending protocols can advertise a much higher interest rate that could prove to be too unstable in the long run. However, fear not, as the Abax Lending Protocol utilizes a dynamic interest rate model that adjusts based on market demand, ensuring fair and competitive rates for lenders and borrowers.
The Team:
From what we know so far, the team behind Abax Finance consists of only two individuals from Cracow, Poland, with their DAO Legal Wrapper aka ‘Abax DAO’ functioning as a non-profit association/foundation registered under the legal jurisdiction of Estonia. Below are the two prominent members who are working on Abax Finance (as well as their LinkedIn profiles for you to visit):
Konrad Wierzbik (Co-founder):
Konrad is one of the two co-founders of Abax Finance and an experienced student who’s studying theoretical physics at EPFL under the laboratory of particle physics and cosmology. He’s knowledgeable on the topics of blockchain technology and has been developing projects such as Abax Finance for a couple of years.
According to his LinkedIn page, he’s been a smart contract developer since April 2022 when working at a company called Widelab, he’s graduated with a Master’s degree in Physics in 2022 and a Bachelor’s degree in Physics in 2019 and also describes his main interests, which are Physics, Blockchain technology, Mathematics, and Economics.
If you would like to know more about Konrad and his past and current experiences, here’s his LinkedIn profile.
Łukasz Łakomy (Co-founder):
Łukasz is the 2nd co-founder of Abax Finance and is a full stack developer, with him graduating with an Engineer’s degree in Computer Science in 2021. According to his LinkedIn page, he has experience as a software and full stack developer as well as a junior AR analyst for around 5 years, working for companies such as ABB, WEBCON & IBM, and has a year's worth of experience developing Dapps and smart contracts using Solidity, TypeScript, and Rust.
If you would like to know more about Łukasz and his past and current experiences, here’s his LinkedIn profile.
The Partnerships & Roadmap:
The Abax Finance team has confirmed that they have been accepted into Aleph Zero’s Ecosystem Funding Program (EFP), meaning that they’ll get access to more funds and tools for the development of the platform, opening the doors to having angel investors and VC’s to invest into the project, get advised by the Aleph Zero team themselves about the direction of the project, and more.
They’ve also announced a partnership with the team at Brushfam, a platform that onboards businesses to Polkadot by creating necessary development infrastructure, auditing, and giving advisory to development teams. Their partnership will allow the Abax Finance team to join the advisory program, and the focus of the team behind OpenBrush is to give both high and low-level code reviews and advise on implemented architecture as well as security. This cooperation shall ensure that the Abax Lending Protocol is performant, secure, and well-designed.
The partnership between Abax and Brushfam can open up many opportunities for the Abax Lending Protocol now and in the future.
The roadmap for Abax Finance has been split into 3 phases:
1st Phase:
This will focus on the convergence of the vision of the DAO, which includes the design and agreement on the governance processes, and the design and agreement on the tokenomics and initial distribution.
It’ll also be the phase in which the team wants to present the product on testnet, which will go live on the 24th of August. This will include implementing a web app, performing testing of the smart contracts and the web app, and releasing the product on the testnet.
2nd Phase:
This will be the phase when the team will initialize the on-chain governance, which includes implementing and auditing the Governance Token contract, the Initial Distribution contract, and the Governor contract, as well as performing the initial contribution round for the community.
The 2nd phase will also include the preparation of the product for mainnet launch, and performing an audit of the overall Abax Lending Protocol.
3rd Phase:
The 3rd phase will be the one when the mainnet launch for the Abax Lending Protocol will occur, which includes deploying the Lending Protocol as a DAO, adding assets to the lending protocol through on-chain governance, and most importantly, governing and improving the protocol!
The foundation will be established in this phase, which includes the discussion of the registration details, and voting on the discussion outcomes via on-chain governance.
Abax has split up the roadmap into 3 clear and transparent phases.
The Tokenomics:
The token for Abax Finance’s DAO (ABAX) will be PSP-22 and have a maximum supply of 1,000,000,000 ABAX tokens in circulation, which will be inflationary and a small no. of tokens minted will be used as rewards for governance participants. The team has designed the proposed tokenomics to create a fair and sustainable ecosystem for the DAO governance system.
They also state that “by incentivizing participation in governance and rewarding valuable contributions, we hope to foster a strong and vibrant community around our project”. However, they’ve also claimed that these tokenomics are subject to approval through on-chain voting, and users can have their voices heard. Below is the distribution of the ABAX token:
4% (40M) Founder & Initial Team: This will be allocated to the ABAX protocol creators and initiators of this DAO.
4% (40M) First Public Contribution: This will be distributed during a one-week public contribution event, where everyone can specify the amount of AZERO they want to contribute to the DAO. The tokens will be distributed proportionally to the contribution, but not more than 1 ABAX per 0.05 AZERO. If not all tokens are distributed, the remaining part will be used in subsequent distributions.
16% (160M) Development Team: This will be vested linearly over 4 years to the development team (4% per year). Initially, the creators’ team will be chosen as the development team, but this can be changed at any time through on-chain voting.
6% (60M) Subsequent Contributions: This will be allocated for subsequent contributions. The Abax team proposes 6 contributions, each worth 1%. These contributions will remain open until all tokens are distributed. The amount of AZERO required to receive 1 ABAX will be 0.1, 0.125, 0.15, 0.175, 0.2, and 0.25, respectively.
4% (40M) Marketing, Partnerships, etc.: This will be allocated for marketing efforts, partnerships, and other promotional activities.
4% (40M) Bug Bounty: This will be reserved for bug bounties, incentivizing the community to help identify and fix vulnerabilities in the Abax platform.
2% (20M) Valuable Community Members: This will be specially allocated for valuable community members & DAO participants who contribute great ideas to the project.
60% (600M) Liquidity Mining: This will be used for liquidity mining, with 10% released per year (10 years in total).
The Conclusion:
In conclusion, Abax Finance is a Lending Protocol that uses a smart contract system that gives users the power to lend and borrow their favorite cryptocurrencies, thanks to the abilities of blockchain technology. It also operates in a decentralized matter via a DAO governance system, or ‘Abax DAO’ as the team calls it, and that opens the gates for the community to voice their opinions for the direction of Abax Finance via on-chain voting.
With all of this combined, there is, without a doubt, that Abax Finance can be very successful in the future by hopefully becoming the leading lending protocol here on Aleph Zero and, potentially, in the Polkadot and Kusama ecosystems, as well as having a massive following from the community and getting them to support the future of Abax Finance by making the upgrades and decision making from Abax DAO via on-chain votes. If you want to learn more about Abax Finance after reading this article, then go visit their website, their documentation & whitepaper, visit their governance forum, and join their socials if you haven’t as well, which all can be found on their website (website link in the References section).
References:
Twitter/X - https://twitter.com/AbaxFinance
Website - https://abax.finance/
Documentation - https://docs.abax.finance/
Governance Site - https://gov.abax.finance/
Whitepaper - https://abaxfinance.github.io/abax-org/whitepaper.pdf
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