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Unbound Finance (UNB/UND): unlocking liquidity from AMM pools

Unbound Finance (UNB/UND) is a decentralised protocol that aims to unlock liquidity from automated market maker (AMM) pools. This allows users to instantly obtain crypto credit lines, as well as providing high-yield earning opportunities.

Background

Unbound Finance was launched in October 2020 by a publicly known team. It’s currently in the testnet phase and no token sale has been conducted yet. The team has claimed that they have major exchanges’ CEOs onboard as angels and currently working on audits for mainnet launch in the near future. It’s supported by Tomo Chain, Zilliqa, Frontier, Fuse Network, Enjin, and Persistence teams.

What is Unbound Finance?

Unbound Finance is a decentralized protocol slated to unlock more use cases for liquidity pool tokens from the AMM market. Unbound is aiming to unleash the potential of these powerful assets and promote their further usage in DeFi protocols, without the need to redeem those liquidity pools tokens. It will also enable minting of a decentralized collateralized stablecoin called UND, synthetic Ethereum, and other synthetic assets with LPTs as collateral.

It’s essentially a derivative layer of automated market makers (AMMs) or orderbook-less decentralized exchanges (DEXes) tasked with ‘unlocking’ the total value locked (TVL) in DeFi protocols. This mechanism can retrieve liquidity from DEXs like Uniswap, Balancer, Bancor, Curve, etc.

According to the official documents, it will be debt and liquidation-free thanks to the use of high-quality liquidity pairs, large collateral ratios, and backup funds.

Unbound Finance supported AMMs
Unbound Finance supported AMM protocols (Image credit: Unbound Finance)

Synthetic Assets

Having introduced the term Synthetic assets, it’s a good idea to clarify what they mean. Synthetics are, as the name dictates, not the real thing but a copy of the original. It means that it is a representative of the underlying asset.

Generally, this is accomplished by tracking the price of an asset through on-chain oracles, which allows for their continuous availability and 24/7 trading, as well as usage in protocols. Synthetic assets can range from cryptocurrencies, fiat, stocks, index funds, precious metals, foods, bonds, and many more. If anything has a price in the market, it can be turned into a synthetic asset.

Aims And Objectives

The protocol is trying to become the primary source of liquidity provision for Liquidity Pool tokens (LPTs) in order to bring existing liquidity pools into active usage, act as an LPT treasury, mint and manage the synthetic assets tracking the price of an underlying, establish LPT role as collateral, create pools of liquidity pools, develop instruments for margin trades and yield compounding, and safeguard against loan liquidations.

Fees

Unbound Finance charges a fee for minting assets. Fees will be distributed as follows:

  • 20% SAFU fund-
  • 40% UND-DAI liquidity pool
  • 20% team fund: this will be for further development of the project.

Unbound Finance Services

There are three primary services provided by the protocol. These include minting, unlocking, and earning services.

Minting

Unbound Finance allows users to mint the UND stablecoin and other synthetic assets by providing their LPT tokens as collateral. This allows them to put the value of their LPTs to use without having to liquidate them in a convenient manner, allowing them to access the funds immediately. The users are charged a minting fee and can only generate the synthetics according to the Loan-to-Value (LTV) ratio. 

Unlocking

After the users return their borrowed funds, the UND or synthetics are burned and the collateral is released. Since the contracts are perpetual and devoid of an expiry date, the users can return the funds at any time without any deadline. There is no fee charged by the protocol for unlocking collateral.

Earning

Another service provided by the platform is the earning facility, where the liquidity providers are given rewards for providing liquidity to the platform pools. The rewards are competitive, variable, and derived largely from the initial mint transaction fees.

Unbound Finance Tokens (UNB/UND)

The primary token of the platform is the Unbound Finance (UNB) token, used for governance purposes and user participation. It can be used to signal intent on important parameters and tuning the performance of the protocol. UNB is an inflationary token and users staking the it will receive rewards to offset the yearly inflation of 4%.

The second token type on the protocol is the synthetics, minted from depositing LPT collateral and being withdrawn/burned once the borrowed amount has been successfully repaid. They don’t have a fixed cap and their actual amount in circulation will remain variable.

UNB tokenomics
UNB tokenomics (Image credit: Unbound Finance whitepaper)

Unbound Finance – Supported Liquidity Pools

Unbound Finance is currently available on testnet only, but supports the following:

  • Uniswap
  • Balancer
  • Bancor
  • Mooniswap
  • Curve.Fi
  • Kyber

In the future, the liquidity pools of Dodo, Fulcrum, 0x, and Black Hole will be made available too.

Here’s their tutorial on how to use to the Unbound Finance testnet.

Conclusions

The first decentralized orderbook-less exchange was Bancor. And since then, DEXs have exploded in numbers and currently compete well against their centralized counterparts. However, the users providing the liquidity and getting the LPT tokens are stuck with an asset, which ironically isn’t liquid by itself. Unbound Finance seems to be the likely answer to address the shortcomings of LPT tokens.

Their further inclusion in the DeFi protocols and newfound uses will surely help boost liquidity and derivatives trading. The promise of no debt and no liquidation is another bonus point, as users can make use of the capital borrowed against collateral, without any fear of losing them. The perpetuity of the contracts allows the borrowed amount to be paid at any time.

Even though Unbound Finance is in its infancy and available only on testnet. The concept and the premise are powerful. Its execution remains to be seen, but if successful, it will be the first of its kind to allow users to mint assets against liquidity pool tokens (LPTs). Hence, it’s likely to set the tone for the upcoming projects and the integrations within the existing ones.

The information provided in this article is intended for general guidance and information purposes only. Contents of this article are under no circumstances intended to be considered as investment, business, legal or tax advice. We do not accept any responsibility for individual decisions made based on this article and we strongly encourage you to do your own research before taking any action. Although best efforts are made to ensure that all information provided herein is accurate and up to date, omissions, errors, or mistakes may occur.

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