A collaboration among decentralized finance (DeFi) developers is introducing non-custodial liquidity markets on the layer-2 network Base with the aim of facilitating trustless smart contracts to automatically connect liquidity pools with borrowing strategies.
The project involves developers from Seashell, RNG Labs, and Loreum Labs, in addition to advisors and collaborators from Ampleforth, Uniswap, and other projects. Together, they have created the Seamless Protocol, a fork of Aave v3. This protocol enables smart contracts with predetermined borrowing strategies to carry undercollateralized borrowings on-chain.
To provide an analogy, borrowing strategies can be likened to specific-purpose loans, such as home, auto, or educational loans. In these cases, the lender knows precisely how the liquidity will be utilized, and the borrower cannot divert it for other purposes. Undercollateralized borrowing is not a novel concept in the crypto space, as protocols like Maple Finance offer capital to institutional and qualified investors through undercollateralized products.
However, this process involves a combination of off-chain and on-chain steps, with terms negotiated between the user seeking capital and Maple’s team before the loan is issued on-chain. The Seamless Protocol simplifies this process by connecting borrowing strategies directly through on-chain smart contracts, granting liquidity suppliers complete visibility into fund utilization.
The protocol also integrates general-purpose loans, such as personal loans, that can be employed in various situations. However, these loans adhere to the conventional DeFi lending rules, requiring overcollateralization.
Seamless believes its solution is more compatible with DeFi than relying on on-chain reputation scores or on-chain identities, such as WorldCoin’s proof of personhood system. According to a contributor to Seamless, the only way to establish conditions for undercollateralized borrowing is through a smart contract-to-smart contract system, which aligns with the fundamental principles of crypto and DeFi—relying on code trust rather than human trust.
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