Research Summary
The report provides an in-depth analysis of Summer Finance, a top 10 protocol by Total Value Locked (TVL) with over $2.7 billion in assets. The protocol, previously known as Oasis, was developed by Maker DAO and offers a money market platform where users can deploy capital in DeFi through borrowing, multiplying, and earning (lending). The report also highlights the protocol’s unique features, including its use of isolated pools and automation capabilities.
Key Takeaways
Understanding Summer Finance
- Origins and Evolution: Summer Finance, initially named Oasis, was one of the first projects developed by Maker DAO. It transitioned into an independent entity following Maker DAO’s decentralization process. The protocol has secured over $2.7 billion in assets, making it a top 10 protocol by TVL.
- Functionality and Features: Summer Finance is a money market protocol that allows users to deploy capital in DeFi through three main products: Borrow, Multiply, and Earn (Lending). It also offers an extensive suite of automation features, providing users with a seamless experience.
- Unique Use Cases: One of the most interesting use cases for Summer Finance is leveraging LSDs, which have a lower risk of liquidation compared to other forms of collateral. This is due to the wide range of assets available on the platform.
Key Products and Protocols
- Product Suite: Summer Finance’s product suite includes the ability to borrow any of the supported assets to unlock liquidity instantly. Users can select different types of collaterals, rates, and ratios according to their specific risk profiles. The protocol also provides extra liquidity for users choosing to borrow $DAI.
- Protocols Leveraged: Summer Finance leverages four main protocols: Aave, Anja, Maker DAO, and Spark Protocols. These protocols enhance the functionality and efficiency of the platform’s products.
Interest Rates and Liquidation
- Interest Rate Management: Summer Finance only pays interest to the assets that are actually used, instead of everyone loaning. This approach helps keep interest rates low and incentivizes users to place liquidity where it is most likely to be used to generate yield.
- Liquidation Process: The protocol operates without the need for oracles, protecting it from Oracle exploits, a common exploit for money markets in DeFi. Liquidations work similarly to placing limit orders, where users signal their willingness to swap assets at a certain price threshold.
Position Management and Fees
- Multiply Feature: Users can increase or decrease their exposure to collateral assets in one transaction through the Multiply feature. This allows users to leverage their borrowed tokens to buy more collateral without performing multiple transactions or resorting to third parties.
- Fees: All multiply swaps incur a 0.2% fee, and all ongoing multiply positions pay a borrowing rate to the respective protocols, which changes with utilization.
Actionable Insights
- Explore the Potential of Summer Finance: Given its unique features and extensive suite of products, Summer Finance presents an opportunity for users to explore and leverage its capabilities for deploying capital in DeFi.
- Consider the Benefits of LSDs: With a lower risk of liquidation compared to other forms of collateral, LSDs on Summer Finance could be a safer option for users.
- Monitor and Manage Positions: Users should regularly monitor and manage their positions on Summer Finance to avoid liquidations and maintain a stable Vault Health rate.
