Today we would like to say bye-bye to idle funds — because today we are introducing Vendor Strategies! For a long time, lenders had to worry that they are missing out on potential yield when deposited funds are not actively being borrowed. The team at Vendor Finance has came up with a way to be more capital efficient!
Once Vendor Strategies is live, anyone creating the lending pools will have the option to pick a strategy for where the non-borrowed funds will be deployed. Once borrowers decide to borrow, lend funds will be pulled from the strategy and will be sent to the borrower automatically. Once the borrower repays, repaid funds will be deposited into the strategy automatically as before. In a nutshell, any time a lending pool has any of the lend assets sitting idle, these assets will be deployed for external yield.
What strategies are supported?
From the launch, we will allow our lenders to deposit un-borrowed funds into AAVE. Under the hood, we can support any ERC4626 vault. Future strategies could include non-ERC4626 vaults, but in either case should focus on yield opportunities without deposit or withdrawal fees, as well as few limitations on liquidity. Compound would be a good example of a future application.
Why is this useful?
If you are lending on Vendor you are most likely charging a premium for the non-liquidation aspect of the loan. Now you can earn the AAVE lending rate while waiting for your loan to fill at the rate you have decided for you and your borrower, while fully controlling all the risk parameters.
What if AAVE can not process the withdrawal?
In the case where AAVE or any other strategy can not process the withdrawal, we will allow lenders to withdraw strategy tokens (ERC4626 shares), which in the case of the AAVE strategy can be redeemed directly for the corresponding aTokens. Borrow transactions will simply revert if AAVE can not process the withdrawal.
What about the timeline?
We have initiated an audit of the new code and no serious issues were found. Currently, we are incorporating minor suggestions and integrating new contracts with our UI. We anticipate rolling this feature out on Arbitrum in April.