Fringe Finance Pioneers New Pathways for ERC4626 Tokens
Lending, Borrowing, and Yield Strategies
Introduction
Fringe DeFi lending and leveraged trading platform is thrilled to launch v2.5, offering new opportunities for select ERC4626 token holders. By listing these tokens, users can unlock the value of their assets and enhance capital efficiency.
The ERC4626 token market holds nearly $6 billion in TVL, much of which remains untapped. Fringe aims to capture this market by offering attractive alternatives for ERC4626 holders, potentially expanding beyond half a billion in TVL. We will be progressively listing these tokens and will announce them on our social media platforms.
Selecting ERC4626 Tokens for Listing
Fringe evaluates ERC4626 tokens based on:
- Holder Composition: Focus on tokens with a high proportion of holdings in externally owned accounts.
- Underlying Token Utilization: Tokens with lower utilization ratios ensure platform stability.
- Redeemability: Priority is given to tokens with swift and reliable redemption processes.
- Composability Risks: Preference for tokens with transparent and secure underlying protocols.
Use Cases for ERC4626 Token Holders on Fringe
Fringe offers ERC4626 token holders several ways to productively deploy their assets on our platform:
- Seek Extra Yield
By lending your ERC4626 tokens to borrowers and margin traders, you can generate additional yield on your holdings. (See diagram below)
2. Yield Exposure
If you expect an ERC4626 token’s yield to be positive, Fringe allows you to express that opinion without being exposed to the price of the ERC4626 token’s underlying asset. i.e. isolate your exposure just to the ERC4626 token’s yield.
This can be achieved by using Margin Trade by going long the ERC4626 token and short the ERC4626 token’s underlying asset. Not only does this position allow you to isolate your exposure to just the ERC4626 token’s yield, it enables amplified exposure to this yield. (See diagram below)
3. Short Yield Exposure
Not only can Fringe provide isolated exposure to an ERC4626 token’s yield, it can also be used to profit when an ERC4626 token’s yield is negative, where shorting the yield exposure can be profitable.
This is achieved by taking out the opposite of the above position. i.e. use Margin Trade to open a position where the long asset is the ERC4626 token’s underlying asset and where the short asset is the ERC4626 token. (See diagram below)
4. Secure Loans
ERC4626 tokens can be used as collateral to borrow any asset listed on Fringe. This allows you to short assets without leverage, or to borrow stables to deploy elsewhere in the DeFi ecosystem or cover short-term expenses. (See diagram below)
5. Amplify Exposure
Fringe’s Amplify facility enables ERC4626 token holders to gain additional leveraged exposure to their ERC4626 tokens. (See diagram below)
You can find more information about our Amplify facility in the video below:
6. Participate in Leveraged Trading
By depositing your ERC4626 tokens as margin, you can speculate on any of Fringe’s listed assets using the Margin Trade facility.
7. Short ERC4626 tokens
Fringe’s Margin Trade facility also allows you to short ERC4626 tokens. (See diagram below)
8. Profit from discrepancy between price of an ERC4626 and its underlying asset
Short or long the ERC4626 against its underlying, depending on whether its price is above or below the value of the underlying for which it is redeemable.
This scenario requires there to be liquid markets for the ERC4626 token. Though we’re unaware of any such existing ERC4626 dex markets, this is feasible in the future. Afterall, the yield-bearing wrapped staked Ether tokens are similar in nature to yield-bearing ERC4626 tokens (insofar that they both provide yield), and there are very healthy dex markets for wrapped staked Ether tokens.
9. Earn yield from staking an ERC4626 token without being exposed to it
This is where you have the opportunity on an external platform to earn rewards by staking an ERC4626 but where you only wish to enjoy the staking rewards and isolate other risks. These comprise the following strategies:
a. Hedge any risk of the ERC4626’s downside price potential, or
b. Hedge the underlying’s downside price potential, or
c. Hedge the ERC4626’s negative yield risk.
To do this for each of these cases,
a. If you wish to hedge your exposure to the ERC4626 price, borrow the ERC4626 then deposit it into the external staking program. (See diagram below)
b. If you wish to hedge your exposure to the underlying, borrow the underlying then use it to mint ERC4626 tokens then deposit the ERC4626 tokens into the external staking program. (See diagram below)
c. If you wish to hedge your exposure to the ERC4626’s native (potentially negative) yield, then use underlying collateral to borrow ERC4626 assets to then stake on the external staking program. (See diagram below)
Stay tuned for upcoming blog posts with step-by-step guides and video tutorials for each of these use cases.
Partnerships and Promotion
To maximize the potential of our ERC4626 integrations, Fringe is actively forming partnerships with ERC4626 token projects to highlight the opportunities our platform offers their users. We are also developing targeted incentive programs to encourage ERC4626 holders to participate on Fringe.
In addition, Fringe is proud to cooperate with the ERC4626 Alliance in support of the broader ERC4626 ecosystem. By collaborating with key players in this space, we aim to drive increased adoption and productive utilization of these powerful tokens.
Seamless User Experience
Handling ERC4626 tokens on a lending and margin trading platform has inherent complexities, including wrapping and unwrapping the ERC4626 tokens to and from the underlying asset when opening and closing leveraged trading facilities, when performing atomic repayments using collateral and when liquidating positions to ensure efficient liquidation operations to assure liquidator participation for platform stability. Fringe makes these operations seamless by automating all of these processes. Users are not required to undertake any of these operations themselves, therefore resulting in a seamless, intuitive user experience. It is innovations like this that position Fringe to provide the greatest utility to ERC4626 token holders and to maximize platform adoption.
Summary
Fringe’s integration of select ERC4626 tokens represents a major opportunity for the DeFi ecosystem. By providing sophisticated holders of these tokens with new ways to deploy their assets for lending, borrowing, and leveraged trading, we aim to tap into the immense latent value in this space.
With hundreds of millions of ERC4626 TVL currently sitting idle, and the potential to attract tokens from elsewhere with our competitive offerings, Fringe is well-positioned to become a leading venue for productive ERC4626 utilization.
Our carefully designed token selection process, robust technical implementation, and strategic partnerships and promotional efforts lay the groundwork for a successful expansion into this exciting new domain. We look forward to serving the ERC4626 community and driving continued growth of this transformative token standard.
- Fringe Finance — DeFi for everyone.
