Next Saturday I will represent @CurveFinance in a fireside chat at @stable_summit: Building Resilient DeFi: How Protocol Design Shapes User Protection and Performance. As preparation, I wrote this down; any feedback/Q is welcome. The Ideal DeFi Lending Market User-centric design Borrowers should not need to interact directly with markets. Users don't care which market they use. They have one single goal: to bring collateral and borrow another asset for the lowest possible rate. They don't care what underlying market they are using as long as the risk in them is comparable. Lenders should not need to interact directly with markets. Pure lenders are optimizing for the highest returns for comparable risk; it's not their task to move assets from market to market to achieve that. Can help migrate users' positions to new markets. Existing positions should be migrated to new markets; collateral and borrowed assets should be changed anytime with the lowest amount of transactions possible and without the need to pay back and recreate them. Risk Management Risk is to isolate. While cross-lending protocols have no isolated risk, I assume that this design is hindering overall growth. The bar of entry for new assets is high. Economically, this makes sense, as a few assets have the far biggest share in the market, but in a world where on-chain lending markets are the norm, this model does not scale. In a system where shifting positions is easy, the same kind of market could be achieved with isolated risk. Has an insurance fund. Over-optimizing parameters for outliers that happen only once a year at the cost of capital efficiency and reputation risk is reducing the potential of lending markets. As nobody can see the future, it's better to have optimistic parameters and use an insurance fund. Gives you time to react. On deteriorating health of a position, the market gives the user time to react by either having reaction time and partial liquidation. Many users have the funds to back up their positions, but these funds should be automatically allocated if such a system exists. Market Operations Markets need to be curated. As no single entity is able to monitor risk and have the expertise in all assets, we need market experts who have a deep understanding of the assets they curate. Curated markets also help to attract users as the curators are incentivized to attract new users. Curators need skin in the game. If curators have no skin in the game, they will optimize for revenue and not for safety. In a risk-embracing market, no skin in the game is very dangerous. Technical Parameters LTV is adjusted to the volatility of the asset. Many lending markets set the maximum Loan to Value (LTV) at the time of creation. A high but still safe LTV is desired because the higher the LTV, the less capital is needed for the same size of borrowing. But markets change, and so does volatility. LTV should be lowered if volatility is growing. IRM model should be adjustable. The Interest Rate Model (IRM) should be simple yet adjustable. The quality of assets changes over time, and so do markets. As liquidity is sticky, adjusting the IRM helps to react to changing market conditions over time. Parameters should be adjusted to position size. Different assets have different target groups and distributions. The supply buffer in the IRM should be adjusted to that position size. User Interface & Information Inform users. Users should be informed through push communication about changing conditions in the markets they use or positions with deteriorating health. Expecting users to monitor their positions actively is not enough. Inform users on asset risk. Asset risk and compounding asset risk should be shown in a clear metric that is easy to understand. These metrics need to be updated based on changing market conditions, and users should be informed. Historical positions. Users need to be able to see historical positions, their yield earned, and paid interest. After liquidation events, they should be able to see why they happened and how much they lost. What you see is what you get. APY should be shown as fact, and APY calculation needs to be public so anyone can recalculate them. Historical APY on assets should be shown to give users a sense of what they can expect. Absolute yield earned, paid interest rate, and a calculated average APY should be visible for every position.