Intro To Sentiment
Sentiment is a non-custodial on-chain liquidity protocol that allows users to borrow and lend digital assets in a permissionless manner. Borrowers can access capital up to 5x the value of their initial collateral, which they can deploy in specific assets and investment opportunities provided by integrations.
- Borrowers borrow against deposited collateral
- Lenders earn yield on otherwise idle assets
- Maintainers, external users, and/or bots can query the Risk Engine to monitor Account health and maintain protocol solvency
Sentiment’s novel Account primitive allows for undercollateralized lending, increasing capital efficiency for borrowers. Borrowers using Sentiment mint a unique contract that holds custody of both deposited and borrowed assets. After depositing initial collateral, borrowers can swap, lend, and provide liquidity to various liquidity pools across DeFi, all within the Sentiment interface.
An example of how Borrowers can use Sentiment: A user can come to Sentiment with $10,000 USDC as collateral, and they are able to borrow $50,000 additional USDC and purchase wstETH. They can then proceed to provide the $50,000 Worth of wstETH and their initial $10,000 USDC ($60,000 total) as liquidity to Balancer, to earn fees and yield in the form of BAL token.
Current DeFi borrowing markets are limited and inefficient because they require users to overcollateralize their borrowing. For example: On Compound, with $100 worth of WBTC a user can only borrow up to $85 worth of USDC.
Overcollateralized lending exists to mitigate the risk of a protocol accumulating bad debt–when the value of a borrower’s collateral becomes less than the value of borrowed assets. When this happens, account liquidators are unable to sell the collateral, buy back the borrowed asset, and pay back lenders without incurring a loss.
While the disintermediary nature of blockchain and DeFi markets creates a transparent financial system, it introduces new challenges to overcome. Specific to borrowing markets as outlined above, on-chain lenders are introduced to widespread counterparty risk, which makes it difficult to build robust undercollateralized credit markets. This creates capital inefficiency that inhibits many participants in the space, such as sophisticated money managers, structured products that depend on (or could benefit from) leverage, and degen traders looking to optimize long-tail opportunities
Intro to Account Contract
Sentiment overcomes this challenge with the aforementioned Account feature, which is a proxy contract created by the user that holds custody of assets. Borrowers can borrow up to five times their collateral, and are liquidated once their collateral falls below a certain health limit set by Sentiment.
This design allows borrowers to control all actions of their own Account while Sentiment is able to monitor the health of the account. Account Controllers and Maintainers monitor every account interaction delegated by the borrower before they are executed, and can liquidate user accounts before the value of their account assets goes below the value of their collateral.