Novel Features Enabled by VMEX’s Isolated Tranche Structure

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VMEX is a modular lending protocol that uses a risk isolated lending pool structure to achieve one simple goal: maximizing flexibility. Legacy lending protocols like Aave and Compound are no doubt great for low risk lending, but their design inherently limits their ability to support assets with a wide variety of risk profiles.

This has been observed with Aave’s recent governance decision to freeze volatile assets due to risk concerns. Instead of reducing risk by simply not supporting “higher risk” assets, we believe VMEX can mitigate risk with its isolated pool structure — and importantly by making risk clear to end users.

VMEX’s structure also allows for experimentation with special purpose tranches and a suite of other novel features. A few examples:

  1. The creation of permissioned tranches (KYC, etc.)
  2. The addition of a modular, tranche native stablecoin with fixed rate, variable duration borrowing.
  3. Creation of 0-governance robo-tranches using 3rd party risk-oracles.

Permissioned Tranches

As new types of participants and assets are brought on chain, particularly real world assets (RWA), it follows that the individuals and protocols that want to interact with these products will have to follow US regulatory requirements (KYC). Tokenizing real world assets opens up a new source of yield for crypto users, and as with any interest bearing on-chain asset, users will want access to liquidity against it.

For this reasons, VMEX allows tranche admins to set address whitelists and blacklists to restrict which users can participate in a given tranche. To help facilitate this, VMEX plans to integrate with a 3rd party protocol to manage the KYC process, so users can simply reference an API or managed list. For example, a protocol that offers access to tokenized treasury bills could create a VMEX tranche, enable the assets as collateral, and allow their KYC’d users to borrow and lend in the pool.

Modular Stablecoins

One of the largest problems faced by lending protocols is generating sufficient stable coin liquidity to service the demand to borrow it. Protocols default to spending token emissions to attract liquidity, which can be very costly and wasteful. As seen in Rari Fuse, many pools struggled to bootstrap sufficient USD pegged asset (the most popular assets to borrow) deposits to service demand.

Creating a typical platform native stable, such as Aave’s GHO, to service this demand would not be compatible with a risk isolated, permissionless structure. A platform native stable couldn’t be minted into ANY pool, as that would open up a very easy attack vector. If a stable coin is going to mint unbacked tokens into a lending pool, it is inherently absorbing the risk of that pool and all collateral in it. 

For that reason, a modular and permissionless structure for a stable coin is more fitting to service the use case — offering potential partners a complete solution to capitalize their assets. This structure could eventually enable pool admins to launch their own stable coin with any collateral they want enabled and with a (effectively) fixed lending rate. A lot more on this to come.

Robo-tranches

Leveraging on-chain sources of risk data allows for VMEX to transparently assign verifiable risk scores to assets. With risk scores in place, tranche and asset configurations can be determined without the need for governance. Clear procedures can be put in place for downgrading assets over time and even delisting. This already happens today with 3rd party risk assessors being contracted by lending protocols to provide guidance and create governance proposals. With the ability to start small using individual VMEX tranches, automating the parameter adjustment process can be fine tuned in a lower risk, but still very live environment.

We would love to hear feedback and novel feature ideas from the community! Make sure to join our Discord and follow us on Twitter to stay up to date!

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