Consensys has released its report for the fourth quarter, as the DeFi protocol circled out major events in the sector from October to December. After releasing the review, the protocol went ahead to give users a sneak peek at what it is planning to launch before the end of 2021. According to the details, the firm is talking about tranche lending.
In basic terms, tranche lending allows several users to look at different interests across protocols to enable people to take loans and take rewards. To complete the real concept of what tranche lending is, one would be able to access all the features mentioned above without going to a financial institution.
Tranche lending lead to the financial crisis in 2008
Tranching was a phenomenon that was present around 2008, before the advent of digital assets. It was used by mortgage banks, and around the time it was rampant, it caused one of the most disastrous financial crises in 2008. According to various DeFi proponents, this news tranche lending would afford users of certain protocols to contribute funds into a pool and lend them out to other members across different protocols in the sector.
What makes the tranche lending that would be practiced in the DeFi sector interesting is that only the pool owners would be able to determine the risks associated with the respective pools. A typical example is if deposits are made into two pools, the users making deposits into the first pool would be eligible to earn at a fixed rate. The users sending funds into the second would earn more or less provided its APY increases or decreases. In the basic meaning, tranche lending allows users to deposit their funds into protocols to know the risk and choose a sure and fixed gain or a volatility pool with a risky gain.
Bainbridge and Saffron Finance set to debut the feature
Out of all the protocols in the DeFi sector at present, only two are ready to roll out tranche lending features. Bainbridge protocol is the first protocol, while Saffron Finance has also announced that it would roll out the feature in the coming weeks. According to a statement from the CEO of BarnBridge to reporters, the tranche lending features are expected to go live in a matter of days after the auditing of the protocol has been completed successfully.
On its part, Saffron Finance has not yet undergone auditing and has not announced a date that it would take place. According to various analysts, tranche lending shows us how these innovations are being composed. The analysts noted that even though popular protocols like Aave and Compound were not involved in building this new feature, the features were still built on various protocols in the sector. Even though the analysts are thumbing up the composability, there are various risks and negatives to the feature. Before the 2008 financial crisis, the CDOs that were sold during that period were securities that were already junk.