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How It Works

Concrete is a decentralized protocol that aims to improve the borrowing and liquidation process in decentralized finance (DeFi), offering automation and protection against market volatility. It addresses inefficiencies in traditional DeFi lending mechanisms and helps users avoid costly liquidations.

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Concrete currently operates within individual blockchain environments, meaning it interacts only with money markets available on a specific chain. If a platform like Aave is not present on a particular chain, Concrete is limited to working with the available markets within that chain. This design reflects a system where each chain functions independently, with its own set of integrated money markets, preventing cross-chain asset routing or interaction between separate chains at this stage of development.

Typical Borrowing and Liquidation Process​

In most DeFi lending platforms, such as Aave, users follow these basic steps:

1. Deposit Collateral (ETH)​

  • Users provide collateral (e.g., ETH) to Aave or similar lending protocols to obtain a loan.
  • For example, a user deposits 100 USD worth of ETH into the protocol.

2. Borrow Stablecoins (USDC)​

  • Users can borrow a percentage of the collateral’s value, typically around 80%.
  • In this case, borrowing 80 USD worth of USDC.

3. Market Fluctuations​

  • If the collateral's value drops (e.g., ETH falls in price), the user’s position becomes undercollateralized.
  • Once the collateral reaches a threshold, liquidation is triggered.

4. Liquidation on Aave​

  • The protocol sells the collateral at auction to recover the borrowed funds.
  • The borrower receives only a small portion of their remaining collateral after liquidation (e.g., 5 USD left after liquidation).

This traditional process is depicted with Aave liquidating the collateral and the user receiving only a fraction of the initial deposit.

Concrete steps in before liquidation occurs, ensuring that the borrower retains more of their collateral.

How Concrete Improves the Process (Early Liquidation Protection)​

Concrete optimizes this process by integrating liquidation protection and pre-emptive monitoring, offering users better control over their assets.

1. Deposit Collateral via Concrete​

  • Instead of interacting directly with Aave, the user deposits ETH into Concrete.
  • Concrete manages the interaction with Aave and other lending protocols on the user’s behalf.

2. Borrow USDC​

  • The user can still borrow the same amount of USDC, but Concrete actively monitors their position for risk.

3. Market Monitoring​

  • Concrete continuously checks the collateral’s value. When the market price starts to fall, Concrete steps in before liquidation is triggered.
  • This proactive approach ensures the borrower avoids Aave’s full 15% liquidation penalty.

4. Pre-Liquidation Closure​

  • If Concrete detects that the collateral’s value is approaching the liquidation threshold, it closes the position early.
  • This prevents the user from incurring significant losses, ensuring a much smaller penalty (if any) compared to the traditional liquidation process.

Concrete Protect​

Concrete also offers protection policies that users can buy, creating additional buffers before liquidation.

  1. Buy Protection:

    • Users can purchase protection policies through Concrete. These policies protect them by deploying additional capital if the collateral value drops below a certain threshold.

  2. Protection in Tranches:

    • The protection is provided in three tranches. Each tranche creates a buffer zone before full liquidation occurs.
    • For instance, if the collateral value drops, the first tranche of protection is activated to maintain the loan.

  3. Final Liquidation (If Necessary):

    • If the collateral value continues to fall after all three tranches have been activated, Concrete will close the position.
    • However, Concrete’s process ensures a more favorable liquidation outcome for the user, as compared to Aave's direct liquidation.

Example Scenario​

Let’s walk through a simplified example:

  • User Action: the user deposits 100 USD worth of ETH as collateral into Concrete and borrows 80 USD worth of USDC.

  • Market Drop: the price of ETH drops, and the collateral’s value decreases from 100 USD to 80 USD. Without protection, Aave would typically liquidate the collateral.

  • Concrete’s Protection: Concrete steps in when the collateral drops below 85 USD and closes the position early. This avoids Aave’s 15% liquidation penalty, and the user retains a higher portion of their collateral.

  • Protection Activation: If the user had purchased Concrete's protection, it would have been activated in tranches, giving them additional time before final liquidation occurs.

Money Market Margin​

The Money Market Margin is an essential feature that ties together the core aspects of Concrete’s platform:

  • It provides users with flexible borrowing options against high-yield vault deposits.
  • It ensures automatic debt servicing through yield generation, simplifying the borrowing experience.
  • It maximizes the user's ability to generate returns while still maintaining access to liquidity.

By combining high APYs with automated borrowing strategies, Concrete offers users a unique opportunity to optimize their DeFi experience.

Probability Engine​

The Probability Engine is used to forecast the likelihood of a user needing liquidation protection. The Probability Engine calculates how quickly a loan might hit the liquidation threshold based on the velocity (speed at which the price changes) of the underlying asset. This allows Concrete to provide users with timely liquidation protection, mitigating the risks associated with sharp market declines.

This engine analyzes factors such as:

  • Loan-to-Value (LTV) Ratio: The closer a loan gets to the liquidation threshold (e.g., 70% or 80%), the higher the probability of liquidation.
  • Volatility of the Underlying Asset: If the market is volatile, the speed at which a loan reaches liquidation can vary greatly. Even loans with relatively lower LTV ratios can face a high probability of liquidation due to rapid price drops in assets like Ethereum (ETH).

Market Volatility and Profitability​

The Concrete's financial model thrives under various market conditions, particularly during periods of high volatility. When market volatility increases, yields often decrease, and liquidation events spike, leading to many users losing assets. However, Concrete is designed to make money in both scenarios—whether the market is trending up or liquidations are occurring. This is a major value proposition for the platform, as it positions itself as a safe, controlled environment for users to achieve the best risk-adjusted returns across different market strategies and conditions.

Revenue Streams​

Concrete generates revenue through multiple streams, including:

  • Loan Protection Fees: Fees charged for protecting loans from collateral depreciation.
  • Foreclosure Fees: Fees when Concrete Lite forecloses a loan before liquidation.
  • Liquidity Provision: Concrete earns a share of the yield from liquidity provider strategies.
  • Swap Fees: Fees generated when liquidity providers swap their cToken positions.
  • Balance Sheet Strategy: Using the Probability Engine, Concrete optimizes its treasury’s asset holdings and seizes arbitrage opportunities.