Hoyu: Permissionless Money Markets
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Hoyu is a new decentralized finance (DeFi) building block that enables the use of any token as collateral. Unlike traditional money markets on blockchain, Hoyu is self-sufficient and does not depend on any external components such as price oracles and liquidators, providing outstanding resilience. Its architecture is based on immutable smart contracts. Hoyu adds a new, secure, and permanent dimension of utility to every token.
Security first
Hoyu's architecture is specifically designed for security. Practical experience has shown that external dependencies can greatly reduce security, as these components can be manipulated in ways that are difficult to predict. To mitigate this risk, Hoyu has no external dependencies, on-chain or off-chain. This design facilitates prevention of attacks at the smart contract development level. Hoyu is built with a security-first approach, resulting in a minimized attack surface and providing a high level of security for its users.
Security: No on-chain dependencies
Hoyu smart contracts do not rely on and cannot be altered by any external on-chain components, such as price oracles, decentralized autonomous organization (DAO) voting contracts, multisig wallets, or externally owned accounts (EOAs).
Security: No off-chain dependencies
Hoyu's operations run smoothly without relying on off-chain actors, such as liquidators or price reporters. As long as the blockchain executes smart contracts, Hoyu remains intact.
Security: No cross contamination
Each token pair gets its own decentralized exchange (DEX) and money market (MM) components when the initial liquidity is provided. Hence, any issues related to that particular token pair stays isolated and never affects other token pairs.
Any token as collateral
Hoyu allows any token to be used as collateral, similar to how a decentralized exchange (DEX) enables creating a market for any token pair. Hoyu achieves this by combining a money market (MM) component with a DEX component. The DEX component provides up-to-date prices and empowers the MM to immediately liquidate loans that have insufficient collateral. Therefore, no external price source is required, and even niche tokens can be used as collateral as long as there is sufficient liquidity on Hoyu.
No loss of lender funds
Automatic and immediate liquidations of loans ensures that lenders' principal is never at risk. As opposed to other money markets, no additional monitoring or off-chain activity is needed. This feature makes the Hoyu platform highly attractive for lenders, allowing them to confidently and passively lend their assets without fear of losing their funds.
Borrow stablecoins
Hoyu treats stablecoins differently from other tokens. Any token (altcoin) can be used as collateral but cannot be borrowed. Conversely, stablecoins can be borrowed against that collateral. In other words, Hoyu does not permit the shorting of altcoins; instead, it offers an opportunity for token project teams to supply liquidity without the added risk of increased volatility resulting from their token being shorted. The borrowed stablecoins can be freely moved and otherwise used by the borrowers without any restrictions.
How does it work?
Key to Hoyu functioning is a modified DEX swap, which includes a call to the MM. This way, every token swap checks for and performs loan liquidations if needed. Hoyu DEX otherwise provides similar functionality to the standard constant product DEXes, and Hoyu MM is conceptually similar to the most popular MMs. This means that Hoyu can be readily integrated with various DEX aggregators and other DeFi products.
What are the implications?
Hoyu is the first money market for altcoins. The success of such a protocol:
- Adds a new type of utility — use as collateral to borrow stablecoins — to every token;
- Brings a new level of resilience to the space of money markets through immutable and secure smart contracts independent of external components;
- Shows that it is possible to build a DeFi primitive without whitelisting tokens, employing extensive governance procedures or burdening users with high complexity;
- Lengthens a very short list of functioning DeFi protocols that are truly non-custodial, immutable, and governance-free.
What is the status of Hoyu?
The initial team has already developed a working implementation of the protocol, and has carried out extensive simulations of various scenarios, including price manipulation attacks and attempts at exploits to demonstrate that the Hoyu protocol is economically secure. Current work is focussed on preparing code for audits and gas optimizations.
How to learn more?
Follow @hoyu_io on twitter. Note that this writeup only highlights the most important features of Hoyu. It skips over the implementation details as well as the innovations in the DEX component, such as maximal extractable value (MEV) resilience. Stay tuned for more in-detail updates as well as the full fledged Hoyu whitepaper.