Tectonic Finance is a term that refers to the process of building and maintaining the infrastructure and governance of decentralized finance (DeFi) systems and protocols.
DeFi, which stands for decentralized finance, is a rapidly growing field that uses blockchain and smart contracts technology to enable the creation of financial applications and services that are decentralized, transparent, and open to all. Tectonic finance aims to build and maintain a robust and secure infrastructure for DeFi applications and protocols, such as decentralized exchanges (DEXs), lending and borrowing platforms, stablecoins and more.
The tectonic process in DeFi includes different aspect such as:
Sure, here are a few more details about tectonic finance and how it relates to decentralized finance (DeFi) systems and protocols:
Governance: One of the core aspects of tectonic finance is governance. In DeFi, governance refers to the process by which stakeholders can vote on important decisions such as protocol upgrades, changes to the network’s underlying infrastructure, and other key decisions that affect the functioning of the network. This can include things like adjusting interest rates on lending platforms, updating smart contract code to fix security vulnerabilities, or even adjusting the token supply. By allowing token holders to vote on these decisions, DeFi protocols can ensure that they remain decentralized and that the community has a say in the direction and development of the project.
Automation: Another key aspect of tectonic finance is automation. In DeFi, automation refers to the use of smart contracts to create self-executing financial contracts. This allows for the creation of financial applications and services that can operate without the need for intermediaries, such as banks or other financial institutions. By automating the process of executing financial transactions, DeFi protocols can help ensure that the network remains secure, transparent, and open to all.
Interoperability: Tectonic finance also involves the integration of different DeFi protocols to allow them to work together and connect to other blockchain networks. This allows DeFi protocols to benefit from the security and scalability of other networks and create new opportunities for users. Interoperability can be achieved through various solutions such as cross-chain communication protocols, sidechain solutions and more.
Security: Security is another important aspect of tectonic finance. With DeFi, security is particularly important as users are in control of their own assets and are responsible for their own security. Security measures are needed to protect against smart contract vulnerabilities, unauthorized access to user funds, and other potential attacks on the network. These can include measures such as Multi-Sig wallets, hardware wallets, and regular security audits to ensure that the network is secure and that user funds are protected.
The Tectonic is an decentralized and non-custodial algorithm-based money market protocol which lets users participate as lenders or suppliers of liquidity. Suppliers supply liquidity to the market in order to earn passive income, and borrowers are able access liquidity in an over-collateralized manner.
The Tectonic protocol is also a cross chain borrowing and lending protocol which makes it different with the power of Cronos token which is the native token of Crypto.com exchange .
The design and structure of Tectonic protocol refers to Compound, which is a tested and tested protocol. It’s also complemented by an appealing incentive programmed, powered by xTONIC which is the token native of the Tectonic protocol.
In short, Tectonic protocol aims to provide secure and seamless cryptocurrencies functionality for money markets, and allowing numerous applications for its clients.
“HODLers” can generate additional income from interest by providing their assets, without needing to manage their assets
It is possible for traders to borrow certain cryptos to boost their short-term trade perspective (e.g. shorting) or to maximize yield (e.g. farming)
Users have access to other cryptocurrency for a variety of motives (e.g. take part in ICO and bonding) without needing to sell their assets
Supplying Assets to Tectonic
Tectonic lets users deposit their cryptocurrency (assets) on the platform to act as an liquidity service. The Tectonic protocol consolidates the user’s supply into an investment pool managed by smart contracts, which makes it a fungible source for the protocol, as well as it allows users to take out their funds at any time.
In exchange for their provided liquid assets, the liquidity provider receive the corresponding tToken (e.g. the tETH token or the USDC) that allows them to redeem the provided assets in the near future. Its value will continue to rise in accordance with the deposit interest rates, which are set according to the demand and supply of assets.
The borrowing of assets from the Tectonic
By using their own assets for collateral are able to access the asset pools of Tectonic to use for any use.
Every asset is tagged with an Collateral Factor (i.e. the ratio of Loan-to-Collateral) that indicates the amount that can be borrowed on each collateralized asset . Collateral Factor that is 75% implies that the borrower can only be able to borrow 70% of worth that their collateralized properties.
If the value of collateralized assets fall or the worth of the collateralized assets rise by a certain amount, a part of the remaining loan can be liquidated at market price less a liquidation discount. The percentage of loans to be liquidated will vary based on the market and assets. It is possible to prevent the liquidation process from happening in either way, by increasing the collateral (i.e. or supplying greater resources) as well as by repaying a part of the loan. Each loan is subject to an interest rate compounded over time and is repaid anytime.
The collateral Factor for each asset is determined according to the intrinsic aspects of the asset including reserve availability and the liquidity on the market. These ratios and the parameters they are set in the Tectonic team, but as the protocol develops and the processes that are required to make it happen are established the oversight of the parameters is open to the public through the governance process of Tectonic.
For collateralized assets, there will be a 10% cushion in place to prevent accidental or unwanted liquidations. An example of the calculation is shown below.This initial ratio will then be allowed to drift upwards to the asset’s max collateral factor if there are changes in the asset’s price.
Maximum Eligible LTV (Collateral Factor) = 90% * Liquidation LTV
CRO’s Liquidation LTV = 80% CRO’s Maximum Eligible LTV = 90% * 80% = 72%
When withdrawing collateral, this cushion rule will also be in place. This means that post collateral withdrawal, your new LTV cannot be above the Maximum Eligible LTV. In order to withdraw, you will have to pay back more of your existing loan. An example of this can be found here in Step 2
Example of Supplying
John supplies (deposit) 5,000 USDC into Tectonic
John receives 2,500 tUSDC, at the current exchange rate of 2 USDC per 1 tUSDC
Assuming USDC APY of 10% and a holding period of 3 months, the exchange rate will move correspondingly with the APY to 2.05 tUSDC/USDC
John can then redeem his supplied USDC at the prevailing rate, receiving back 5,125 USDC
Example of Borrowing and Liquidation
Continuing the previous illustration, instead of redeeming his USDC, John decided to use the asset as collateral to borrow CRO
John pledges his 5,000 USDC, and with a collateralization ratio of 75%, he can borrow up to 25,000 CRO at the prevailing exchange rate (0.15 USDC per 1 CRO)
John decides to only borrow 12,500 CRO (a collateralization ratio of 50%)
In 3 months’ time, assuming a borrowing APY of 12% and a constant USDC/CRO exchange rate, John will need to pay back his original balance and its accrued interest to a total of ~12,875 CRO
If during the borrowing period, the value of CRO to USDC increases as such that John’s collateralization ratio goes beyond 75%, a liquidation event will occur to a portion of the borrowing in order to bring back the collateralization ratio to below 75%.