UNION is Joining the UniLend Ecosystem to Bring Collateral Optimization to UniLend Users
- UNION is joining the UniLend ecosystem and bringing C-OP, a collateral optimization product, to UniLend
- C-OP will allow users on UniLend to convert a portion of their collateralized position to acquire protection for their collateral
- C-OP’s protection mechanism works similar to an American-styled put option
- UniLend will be among the first of the decentralized money markets to implement C-OP
- To kick things of, UNION will also be listing their UNN token on UniLend
UNION is joining the UniLend ecosystem and is bringing over tools that can help users optimize their collateral positions. The primary tool from UNION that will allow UniLend users to optimize their collateral positions is UNION’s C-OP product. As defined by the UNION team, the C-OP is an American-styled put option that protects against inefficient collateralization.
This article will examine how the C-OP can prove to be a great way for users of UniLend to protect a portion of their capital in case of liquidation. It will also provide a brief insight into how the C-OP mechanism works.
As a part of the collaboration with UNION, UniLend will be listing UNION’s native token, UNN, on the UniLend platform. UniLend will also be collaborating with UNION to explore further areas in which we can work together to increase the momentum of DeFi.
C-OP & Collateral Optimization
In decentralized lending platforms such as UniLend, users have to put up a specific amount of a certain token as collateral if they want to borrow another token. Usually, collateral amount tends to be equivalent to 150% of the value of the borrowed tokens. For example, if you wanted to borrow 100 DAI (valued at $100), you would have to deposit $150 in ETH as collateral.
UNION has created a tool called C-OP, which will provide users of UniLend with the opportunity to optimize their collateral positions and protect themselves against inefficient collateralization. Optimizing collateral positions is something that not a lot of lending platforms in the space have looked into yet, and we’re excited to be among the first to integrate UNION’s C-OP product to enable more efficient use of collateral for our users.
As of now, the collateral put in crypto lending platforms by users is pretty much left as an idol asset and it does not provide much benefit to the borrowers. Using C-OP, UniLend will be able to allow borrowers to use some of their collateral to buy some protection for their collateral under the unfortunate circumstance of liquidation.
Liquidation is an event in cryptocurrency money markets when the price of the token used as collateral by the borrowers falls to a certain level. Once the price drops low enough, a smart contract will execute a sell order for all the collateralized tokens and give them to the lender. Given that decentralized finance and cryptocurrency markets as a whole tend to be extremely volatile, borrowers will benefit hugely from having the ability to hedge some of their losses in the event of a liquidation.
How C-OP Works
C-OP or collateral optimization is a tool that uses very similar mechanics to American-style put options to provide borrowers with the ability to hedge some of their collateral. The full process along with all the technical details on how it works can be found in this article from the team behind UNION.
With American-style put options, a person buys a derivative contract which allows them to sell an underlying commodity within a certain time frame for an agreed upon strike price. In the case of C-OP, borrowers on UniLend will have the ability to use a portion of their collateral to buy a token called uUNN. This uUNN token gives the user the ability to sell their underlying collateral tokens at a future date (before expiration) for an agreed upon strike price. Thus, the uUNN token essentially operates in an identical manner to an American-style option, but it does so in a fully decentralized fashion.
Essentially, C-OP will enable UniLend users to protect a percentage of their capital in the case of liquidation.
Expanding the Full Scope of DeFi
“Decentralized finance is no doubt ushering in a financial revolution, but being a nascent industry, there are still many issues to overcome on its path to maturity. By collaborating with UNION and other innovators in this industry we are working towards the optimization of numerous faucets within DeFi, especially in areas regarding decentralized money markets.”
Chandresh Aharwar — CEO of UniLend
“Adding C-OP to Unilend’s lending platform opens the door for any ERC-20 to benefit from 1:1 borrowing power while simultaneously offering UNION C-OP liquidity providers an unlimited selection of tokens they can choose to support. UNION is excited to offer protection for Unilend’s one-stop shop for trading, liquidity, and lending.” — John Liu, CPO of UNION.
Ever since the inception of decentralized money markets, the collateral obligations of borrowers in this market are pretty much just idle capital. Borrowers cannot choose to do anything with their collateral and have no means to protect their collateral against the market volatility of cryptocurrencies.
By collaborating with UNION, UniLend will be among the first of the decentralized money markets to give borrowers the ability to use some of their collateral to hedge or protect some of the tokens they have as collateral.
This is a major step forward in the maturity of decentralized finance.