A Deep Dive Into Lending, Borrowing, And Bonzo Finance

The Hedera network is progressively rolling out foundational and advanced protocols to enhance its DeFi ecosystems and the next leap is bolstering lending and borrowing services.

This phase will evolve how liquidity is utilized on-chain because lending and borrowing serve as a liquidity layer, enabling the Hedera community to unlock the value of their assets while retaining ownership.

Let’s take a deep dive into Bonzo Finance - a recently launched platform and one of The HBAR Foundation’s collaborative RFP award recipients.

‍MEET BONZO FINANCE

The Bonzo Finance protocol operates single-asset pools, which means users can supply assets like HBAR, HBARX, or stablecoins without pairing them with other assets. This eliminates the risk of impermanent loss — a common challenge in DEX liquidity pools. Assets deposited in these pools become available for borrowing, while earning interest, effectively activating idle liquidity across the entire DeFi ecosystem.

Lending protocols are particularly attractive for:

1. Individual Users: They can earn passive rewards by supplying assets.
2. Institutions: They can earn yield on and borrow against larger amounts of idle liquidity.
3. Token Projects: Projects with treasury reserves can allocate portions of their tokens to earn rewards and manage their liquidity effectively.‍

‍GAMIFYING DEFI WITH NFTs & POINTS

Bonzo’s unique approach to user engagement includes NFTs with utility. The inaugural NFT sale in June offered collectibles (Desert, Ocean, Space, and Singularity NFTs) with built-in perks like:

• Community benefits: Discord roles and profile picture customization.
• Points multipliers: Boosts in Bonzo’s points based on NFT tier.
• Token airdrops: Distribution of governance tokens for participation in Bonzo’s DAO.

These NFTs tie directly into Bonzo’s points program, which rewards users for supplying and borrowing assets. Points are convertible into Bonzo governance tokens at the end of each season, incentivizing long-term engagement and a widespread distribution across active protocol participants.

A second NFT sale, planned ahead of Bonzo’s token generation event (TGE), introduces stackable multipliers that further enhance point earnings.

What sets Bonzo’s points system apart is its integration with the Hedera Consensus Service and usage of the HCS-20 standard on Hedera, created by the Hashgraph Online DAO. 

By making points verifiable and timestamped on-chain, Bonzo ensures transparency and trust, a significant departure from traditional off-chain database systems.‍

EARLY SUCCESS AND STRATEGIC PARTNERSHIPS

The mainnet launch of Bonzo Finance on October 28 was a milestone, quickly reaching over $1 million in TVL within two hours. By the end of the first two weeks, TVL soared to $5.7 million, placing Bonzo among the top three Hedera DeFi protocols according to DeFi Llama. Currently, it boasts $19 million+ in TVL and climbing.

This rapid adoption was fueled by partnerships with token-based projects offering liquidity incentives. For instance:

• Karate Combat allocated 20 million KARATE tokens for liquidity rewards.
• DOVU contributed 10 million DOVU tokens.
• Earthlings provided 1.8 million STEAM tokens.

These incentives encouraged token holders to supply their assets to Bonzo, strengthening the protocol's liquidity foundation.‍

SAFEGUARDING THE ECOSYSTEM WITH RISK MANAGEMENT

To ensure user safety, Bonzo Finance implemented a phased launch strategy. Initially, only liquidity supply was enabled, allowing the protocol to establish liquidity thresholds before activating borrowing functionality.

Bonzo partnered with LedgerWorks, a risk management provider, to define risk parameters based on real-time data. Their actuarial models consider asset liquidity, counterparties, and macroeconomic factors to set parameters like:

• Loan-to-value ratio (LTV): The percentage of collateral value that can be borrowed.
• Liquidation thresholds: The point at which collateral is subject to liquidation.
• Liquidation bonuses: Discounts offered to liquidators purchasing collateral.
• Supply and borrow caps: Limits on asset supply and borrowing to mitigate risk.

This meticulous approach ensures protocol safety, user confidence, and ecosystem integrity.‍

UNLOCKING ADVANCED DEFI FUNCTIONALITY

Lending protocols extend beyond their core utility, offering advanced functionalities that reshape various DeFi strategies:

1. Long & short strategies: Enabling users to speculate on asset prices.
2. Leveraged liquid staking yield: Recursive borrowing loops between base assets and liquid staking tokens to maximize yield.
3. Collateral swaps (coming soon): Allowing users to change their collateral without repaying loans first.

Bonzo’s integration with Hedera’s liquid staking tokens enhances these strategies. By enabling users to collateralize HBARx (HBAR’s liquid staking token), the protocol creates a symbiotic relationship where staking yields feed directly into borrowing opportunities.‍

LOOKING AHEAD

Soon, Bonzo plans to integrate additional capabilities, including:

• Advanced analytics: Granular insights into asset performance and protocol health.
• Notification systems: Real-time updates for liquidation events or market shifts.
• Transaction history: A detailed view of all lending, borrowing, and liquidation transactions performed by accounts engaging Bonzo Finance.

These features aim to solidify Bonzo Finance as a cornerstone of Hedera’s DeFi ecosystem, fostering innovation and unlocking new opportunities for users and projects alike.‍

FINAL THOUGHTS

Bonzo Finance represents more than a lending and borrowing protocol — it’s The Liquidity Layer of Hedera. By combining education, strategic partnerships, and advanced functionality, Bonzo is charting a path toward a more robust and interconnected DeFi ecosystem. As the protocol continues to grow, it underscores Hedera’s potential as a leader in the Web3 space, empowering users to explore the limitless possibilities of decentralized finance.