Enter the Umeeverse: Cross-Chain DeFi
TLDR
Umee is a cross-chain DeFi hub that will be owned and governed by the community. Umee will allow users to lend or stake assets as collateral on one blockchain in order to borrow assets on another blockchain. Users will earn interest on their deposits and can choose to use it as collateral to borrow across different chains. The first iteration of Umee will facilitate lending and borrowing between the Ethereum and Cosmos ecosystems.
Decentralized Finance (DeFi)
It’s no secret that the existing financial system is flawed. Nearly two billion people still don’t have access to the banking system, and centralized banking systems run in an opaque way that gives the public little to no visibility. While the internet connects people from anywhere in the world, money transfers facilitated by the legacy infrastructure are slow, expensive, and inefficient. I could go on, but you get the point.
Fortunately, blockchain technology has made it possible for innovators to solve many of the issues associated with the existing banking system. Through the use of crypto-assets and DeFi applications, internet users can access a new monetary system that is inclusive, efficient, transparent, and free of any centralized controls.
Cross-Chain DeFi
Currently, blockchains operate in silos. Many blockchains are unable to communicate with each other natively which limits each chain’s capabilities and often forces users to rely on centralized intermediaries with permission-based access, slower processes, and fees that could otherwise be avoided. Most lending and borrowing DeFi protocols like Aave and Compound do a good job allowing users to lend and borrow assets on a single chain, but do not give users the ability to engage with assets outside of Ethereum through cross-chain lending and borrowing.
Meanwhile, cross-chain bridge solutions like Ren can allow users to move assets across different blockchains, but in order to do so a user must give up the asset on the original chain to receive a mirrored version on the alternate chain, effectively exchanging the original asset for a protocol-specific version.
For example, if Tom holds only BTC and wants to earn DeFi yield on Ethereum, Tom could use Ren to exchange his BTC into renBTC, Ren Protocol’s mirrored version of BTC on Ethereum, in order to “move” his BTC to Ethereum. While this cross-chain strategy works, it exposes users to the additional risk of a protocol-specific asset, and forces users to give up their original position in order to open a new position on another Chain; this is not ideal for users who want to keep their original assets with minimal risk involved.
Since there is no way to smoothly lend and borrow crypto-assets across chains, many DeFi users miss out on impressive yield opportunities outside of their native chain. Fortunately, after five years of development, the Cosmos Inter-Blockchain Communication Protocol (IBC) was launched in March 2021. The IBC allows existing blockchains to transfer tokens and other data between each other, achieving a new level of interoperability.
What does Umee have to do with all this?
Umee is leveraging the IBC to build a cross-chain DeFi hub that will allow users to lend and borrow assets across different blockchains in a decentralized way. Umee will create a universal permissionless platform governed by the community in order to facilitate the best cross-chain lending and borrowing environment possible.
The advantages the Umee Network can provide include:
- Permissionless collateralized lending and borrowing- no banking intermediaries, no credit checks
- Cross-chain DeFi capabilities
- The ability to use staked assets as collateral on Proof-of-Stake chains
The initial iteration of Umee will allow users to:
- Participate in a universal and permissionless DeFi hub
- Earn interest through lending assets on Cosmos and Ethereum
- Borrow assets between the Cosmos and Ethereum ecosystems