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Fulcrum: a high-stakes way to borrow and lend ETH

By on April 19, 2021 0

It’s been a horrible or an exciting week – depending on who you ask – for DeFi. Nobody had more than the team of BZx network, the group behind the DeFi margin lending and borrowing platform, Pivot. On February 14, Valentine’s Day, a hacker / trader (depending, again, who you ask) managed to create a trade that earned them around $ 350,000 profit at the expense of Fulcrum users.

The bZx team responded by freezing the platform, opening it a day later, and issuing a autopsy explaining the attack. But just a day later, the hacker struck again, this time with a completely different type of transaction that paid off. $ 645,000. As of this writing, some features of Fulcrum are still on hiatus.

Wait. Was that the flash loan thing?

Yes.

I have strong feelings about it.

Awesome.

What are flash loans?

Good question, it’s too technical for you, but in short, Flash Loans can be thought of as instant and atomic transactions that borrow and then return tokens within a single transaction. This means that all in the same action, you borrow an asset, do something with it, and then pay it back. And because it’s “atomic,” either everything in a chain of transactions ends or none of them does.

This deserves more attention, which is what we’ll come to, but for now what we’re going to do is look at the platform the flash loan trader took money from. And I’ll – wait – put my money in it.

What is Fulcrum?

Fulcrum is a DeFi platform that allows users to borrow and lend ETH and ERC20 tokens. It also allows for margin trading. Remember that leverage we talked about it on dYdX? Yes, a bit like that, but when you have value it is symbolized.

Before you ask, this means that when you give a loan, you can trade that loan like any other token. Why? Because it means that we now have a token that is expected to increase in value over time when interest is paid to it. Cool, huh?

Okay, enough talk, let’s take a look.

Whether you like the colors or not, I do. In fact, despite its issues and color scheme, I think Fulcrum is pretty cool.

But there are still things to be worked out, such as security. Which brings us further down the page.

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“Audit of smart contracts”. MDR.

Let’s continue, let’s try to lend money. Since Flash loan hit Fulcrum, rates have been all over the place, for good reason. Let’s see if we can beat the odds and get some of that soft, good interest of 42%.

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42% ?! Who pays for this?

Good question and difficult to answer. But yes, despite the attacks, there are still people borrowing ETH from Fulcrum. And as the team strengthens the platform, it may be more difficult for them to stop borrowing. There are also not many people who lend, so the income from their loans goes very far. Supply and demand, do you know?

Click on ETH and let’s send them 0.1 (around $ 26 at time of writing). Click on “next” and let’s go.

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It takes a few minutes to confirm everything on the Ethereum blockchain … and … it’s good!

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Because I often complain about the lack of light mode on these (really for no good reason), let’s just demonstrate that Fulcrum has a nice toggle to show it off.

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You can see the interest rate increase in real time and withdraw at any time. Pretty simple, pretty cool.

I know what you are saying. “42% interest, shut up and take my money!” Before going all in, there’s a reason the prices are high, hint: it’s because the risk is really high.

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A view of Etherscan.io

Oh, there is one more important thing to note. Well two, actually.

Remember I said the loan itself has a token and pays interest?

Now that I have made an ETH loan on Fulcrum, I can see this token in my wallet. They point it to “iETH”, guessing that the “i” is for interest. Anyway, I can trade and send this as ETH or DAI. Why is this useful?

As you can see, people can trade these things right on DEXs, in this case on Uniswap. This is useful if, for example, you want to earn interest on your inactive ETH, then decide to trade it directly for DAI, without having to give up ETH, and then trade for DAI.

Also note that even though I put 0.10 ETH, I have less than 0.10 iETH. There is a ratio that started at 1 ETH = 1 iETH, but as interest is paid (accumulates) that ratio decreases. This means that I get less iETH over time for each ETH, otherwise my iETH should be worth more ETH over time. It’s actually pretty cool.

In conclusion, the ideas and models developed by Fulcrum and the bZx team are quite elegant.

I see them as an interesting prototype of how more advanced systems might evolve if DeFi and tokens become more widely used. There are still a million questions left, especially around security, that will determine whether bZx and Fulcrum are successful themselves. But hey, innovation is messy, and in DeFi that messy innovation can mean you lose some of your magical internet money along the way.

But at least it’s on a pretty platform in this case.

At the risks involved? I say:

Warning

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.

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