Balancer

It's a descentralized exchange, similar to Uniswap.

However, it can hold more than 2 assets in a liquidity pool.

  • Instead of having a constant k, it has a bounding surface V.

  • Instead of making k = x * y, V = $\prod_{t = 0}^{n} B_{t}^{W^{t}}$.

    • n: The number of the types of the tokens
    • B: The balance of the token t
    • W: The normalized weight of the token t

Rehypothecation

Rehypothecation is pledging collateral for debt.

That means you can use borrowed assets as collateral, and demande more loan.

As the result, the amount asset in the market is more than that is issued.

Money multiplier

In CeFi, the gouverment decides that the resever ratio is 10%. Image you deposit $100 in a bank A.

  1. The bank A sets aside $10, and lends $90.
  2. A user borrows $90, and deposits it into the bank B.
  3. The bank B sets aside $9, and lends $81.

In total, the deposit is $100, but the loan is $171.

DeFi multiplier

Multiplier is similar to that in CeFi. The only difference is that no gouverment descides the resever ratio. Different protocols have different collateral ratio. For example:

  1. User deposits $1500 and get 1000 DAI. (The collateral rate is 150%)

  2. He deposits 1000 DAI and 1000 USDC in Uniswap.

  3. Uniswap gives him $2000 worth of LP and he collateralizes it to borrow 1960 DAI. (The collateral rate is 102%)

As the result, the total deposit is $1500 + $1000 (in DAI) = $2500, while the total loan is $1000 (in DAI) + $2000 (in LP) = $3000. More importantly, the collateral rate is lower in second round (102% vs 150%).