What it means for Sturdy to be the first positive-sum lending protocol
The current state of DeFi lending
On existing DeFi lending protocols, borrowers pay interest to lenders. The interest rate is determined by the “utilization rate,” which is the percentage of deposited funds that are being borrowed. This model, with some minor variations, is present in every major two-sided DeFi money market. But this ubiquitous model has a major drawback; it creates a zero-sum game in which the only way for lenders to earn more is for borrowers to pay more.
Lenders want 10% APY on their stablecoins, but borrowers have little reason to pay that much when low-rate CeFi (or even TradFi) alternatives exist. Protocols have tried to bridge the gap by offering aggressive liquidity incentives to both parties, but this is unsustainable and devalues the token over time.
Sturdy flips this model on its head. Just as no-loss lotteries redefined the relationship between participants, Sturdy’s mechanics simultaneously enable borrowers to pay less and lenders to earn more.
Our positive-sum model
Sturdy is a two-sided lending market in which borrowers take out loans against their collateral and lenders supply assets on which they want to earn yield.
What makes Sturdy different is that borrowers don’t pay interest; instead, Sturdy stakes their collateral and uses the staking yield to provide interest to lenders.
For example, if a borrower deposits FTM as collateral, Sturdy stakes it in Yearn. As the tokens earn interest, the yield is swapped to stablecoins and distributed to Sturdy’s lenders. When borrowers want to reclaim their collateral, Sturdy automatically converts the collateral back to FTM.
Sturdy isn’t limited to just proof-of-stake assets or native staking strategies; the source of yield can come from anywhere. We’re focused on deploying Sturdy to EVM-compatible chains, starting with Fantom. Users will initially be able to lend or borrow stablecoins and provide blue-chip assets like FTM and WETH as collateral.
For borrowers, Sturdy represents a way to take out interest-free loans. While a handful of other protocols are interest-free, they charge fees to open or close a borrowing position (Sturdy has neither).
For lenders, Sturdy offers superior yields. Stablecoin depositors can access APYs normally reserved for volatile assets without the risk of holding them. And because the loans are overcollateralized, yields are further boosted.