Aug 6, 2023
The seeds of Pharos were sown during our time working on Beanstalk, where the challenge emerged: how do we create derivative products for Beanstalk assets? Existing lending protocols do not support them, yet forking and up keeping a dedicated lending protocol proved to be a costly project. We quickly came to realize that we were not the only ones facing this problem. Today’s lending protocols aren’t open. They, for better or worse, manage risk for all users by controlling assets and lending terms.
An idea emerged: a permissionless, asset- and risk-agnostic lending primitive that empowers users to effortlessly create tailored lending markets. Seamless deployment, minimal to no coding – all at your fingertips with a few clicks of a button.
To address the need for market customization, we adopted an order-book approach. We leveraged EIP-712 to create a scalable and gas efficient order-book where off-chain messages can be used to execute orders on-chain. A challenge that comes with having many markets however, is liquidity fragmentation - enter Ports.
Ports are plugins that both lenders and borrowers load with assets to start their journey on Pharos. Users can create numerous markets from a single Port, with all markets utilizing the same assets. This optimizes capital usage across multiple markets. For example: Lender-A can load their port with ETH and create two markets: borrow ETH at 2% with LUSD as collateral or at 3% if USDT. Ports offer solo or pooled configurations, and can support any asset, including ERC-20s, NFTs, rebasing and staked tokens, and those embedded in other DeFi protocols.
A lending market is a set of terms that binds lender and borrower ports. The terms of a market are primarily defined by the plugins selected. Each plugin is a permissionlessly deployed contract with arbitrarily complex logic. Along with a set of ports, the following plugins make up a lending market -
Appraiser: determines the value of an asset (oracles, oracle-less, etc)
Collector: gathers lending fees (interest rate, initiation fee, etc)
Closer: manages breached terms (collateral auction, soft liquidation, sacrifice collateral, etc)
Terminal: deploys loans and custodies leverage (swapping, yield farming, borrower's wallet, etc)
This fusion of plugins theoretically offers limitless, permissionless lending markets. Each plugin boasts endless customization, and once deployed, can be parametrized and reused by other users without the need for redeployment.
The high level of customizability is one half of the problem. Creating the right markets with the right set of risk parameters is another. Rewarding market creators therefore, with part of the fees generated from that market, creates an incentive for participants to manage/design markets without being a lender or a borrower.
Pharos' potential awaits exploration. We don't hold the blueprint for the ultimate lending market, nor do we claim its existence. By equipping users with tools and asset-risk agnosticism, we empower them to find the answer themselves.