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Echo DeFi Protocol

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Echo DeFi Protocol

Protocol Overview

The Echo DeFi protocol makes echoes, such as tokenised stock, more powerful then the original underlying securities.

The Echo DeFi Protocol supercharges the collateralizing of capital by enabling investors the ability to collateralise the widest range of asset classes ever seen on a peer-to-contract DeFi protocol through purchases from both the Echo Brokerage and Echo Exchange.

The Echo DeFi Protocol is better categorised as a decentralised liquidity market protocol. Aave has enjoyed great success with this model (although simplified below) which will be discussed more in ‘Competition’. For a more detailed understanding of decentralised liquidity market protocols available on the market, such as Aave, there is plenty of information readily available. The primary distinction is the addition of echoes and Echo Crypto-Mutual's to the protocol. The greater stability of these additional asset classes allows users to take greater advantage of the underlying technology. Much of the overview below is credited to the Aave whitepaper.

Echo users can become depositors or borrowers. Depositors provide funds to borrowers in return for interest on their deposit on a ‘peer to contract’ or ‘peer-to-pool’ system. Unlike a peer-to-peer system, users are not reliant on finding a 'match' but pools all borrows and lends into a sophisticated algorithm with smart contracts. This peer-to-contract protocol allows investors unparalleled financial flexibility with changing market conditions.

The interest rate for both borrowers and lenders is decided algorithmically depending on supply and demand: For borrowers, it depends on the cost of the capital- the amount of funds available in the pool at a specific time. As funds are borrowed from the pool, the amount of funds available decreases which raises the interest rate. For lenders, this interest rate corresponds to the earn rate, with the algorithm safeguarding a liquidity reserve to guarantee withdrawals at any time.

At the heart of the protocol pool is the concept of reserve. A reserve accepts deposits from lenders. Users can borrow these funds, granted that they lock a greater value as collateral, which backs the borrow position. Specific currencies in the pooled reserves can be configured as collateral or not for borrow positions. The amount you can borrow depends on deposited currencies which are still available in the reserves. Every reserve has a specific Loan-To-Value (LTV), calculated as the weighted average of the different LTVs of the currencies composing the collateral.

In case of price fluctuations, a borrow position might be liquidated. A liquidation event happens when the price of the collateral drops below the threshold called liquidation threshold. Reaching this ratio channels a liquidation bonus, which incentivizes liquidators to buy the collateral at a discounted price. Every reserve has a specific liquidation threshold, following the same approach as for the LTV.

Safety Module

The staking safety module provides a % return of the protocol fees in return for ‘insuring’ the protocol from sudden risk. Echo Token staked also provides voting rights as part of our governance system.

Flash Loans

Flash loans allow users to borrow from the reserves within a single transaction, as long as the user returns more liquidity than has been taken. This can be an excellent tool for arbitrage and experienced traders.

Layer 2

The Echo DeFi Protocol will use layer 2 solutions alongside the ethereum blockchain. The increasing gas prices of the ethereum blockchain have left many smaller investors facing exorbitant fees when trying to interact with the DeFi sector. We will partner with layer two solutions to offer alternative solutions for our clients and to bring in a wider user base. Likely candidates in the short term include Polygon Matic, Polkadot and Solana. excellent tool for arbitrage and experienced traders.

We intend to remain ‘chain agnostic’ by integrating a wide variety of chains and bridges for our clients.

Echoes and Private Investment

With a combination of purchases from the Echo Marketplace it will be possible to put tethered exchange traded funds/echoes onto the Echo DeFi protocol. Due to the stability of these assets the LTV ratio offered will be very high; offering genuine alternatives to stablecoins, ETH and BTC. Echoes will take Echo to the next level with a large surge in potential TVL. Tokenised private investments will not be made available on the DeFi protocol unless we believe there will be sufficient volume and reserve to sustain it.