Silo Finance
Silo Finance is a decentralized, risk-isolated and permissionless lending market, allowing users to create borrow-lend markets (known as "silos") for any token asset.
Silo was developed as an innovation on pre-existing lending markets such as Aave and Compound that utilized a shared-pool model where whitelisted collateral can borrow any other token. Whilst this allows for high capital efficiency, an exploit in a single whitelisted collateral exposes all other tokens in shared-pool lending markets to risk of bad debt.
In Silo, all token assets (or 'base tokens') receive their own isolated lending market consisting of the base token and the bridge asset(s) only. Since base tokens can only be used to borrow the bridge asset(s), an exploit in a base token will only affect bridge asset lenders in that specific silo. The bridge asset acts as an intermediary to allow for cross-silo borrowing.
Features
Money Market ("silos")
The core function of Silo is to allow for the creation of money markets for all token assets. Specifically, it allows users to:
- Deposit tokens and earn interest from borrowers.
- Use deposited tokens as collateral and borrow tokens from other users.
The primary value proposition of Silo is its risk-isolated money market design, in which every token has their own silo as opposed to all tokens being collected into a single pool. The benefit of this is that exploits in a single token are isolated to that tokens silo only - lenders in other silos are completely unaffected. This risk-isolated design allows Silo to list long-tail assets and service a larger market than its shared-pool competitors.
Stablecoin
Silo also allows the minting of XAI, the protocol's native stablecoin. XAI is one of two bridge assets alongside ETH that can be deposited, borrowed from, and used as collateral in any token silo.
XAI is an overcollateralized stablecoin similar to DAI and MIM and currently can only be minted using ETH or USDC as collateral. The amount of XAI available to mint from the ETH and USDC silos are known as 'credit lines' with the minting of XAI accruing interest to the SiloDAO. As AMM liquidity for XAI grows, SiloDAO intends to extend credit lines to additional silos, allowing more token assets to leverage their positions for greater capital efficiency.
Governance
Silo is a fully decentralized protocol, with governance decisions controlled by $SILO holders. Proposals that can be voted on include the creation of additional silos, upgrading of oracles, and in future the extension of credit lines. At present, the tokenomics model of $SILO is unclear but the team has discussed exploring a veSILO model.