The lending protocol, represented by Aave, provides the ability to lend to a few of the most liquid tokens. In a decentralized financial world, Aave offers the good features of no trust and no permission. While decentralized lending has proven to work well over time, there is a large unmet need for current lending protocols. aave only meets the ability to lend to the most liquid assets and needs to be further extended for other assets. aave is a single-chain model. Although cross-chain collateralized lending is achieved through a token bridge, it requires each public chain to deploy the Aave protocol, which is costly and complex for users to operate.
Reserves: In lending agreements, in rare cases the value of a borrower's collateral may be less than the value of its liabilities, in which case the borrower's ability to repay is referred to as insolvency. When an insolvent borrower is liquidated, there will be remaining liabilities that are considered to be bad debt. If bad debts appear to accumulate, lenders may all come at once to withdraw funds to avoid becoming a bad debtor. To mitigate this risk, follow Compound's practice of agreeing to draw down a portion of the interest accumulated into a reserve. If bad debts arise and the reserve is used to make repayments, the lender can avoid becoming the bearer of bad debts as long as the reserve accumulates faster than the bad debts. The percentage of interest withdrawn to become a reserve is called the reserve factor and is noted as RF. Different assets have different RF. The RF takes on a value between 0 and 1 and can be adjusted for trade-offs through governance.