Soil is a blockchain-based lending protocol that is built to bring traditional finance into the crypto world and reshape corporate debt and fixed-income investments.
To do that, it is designed as a debt marketplace where established companies can obtain financing, and crypto investors can lend their stablecoins to earn yield derived from Real World Assets that exist off-chain.
The platform will take a percentage of the interest paid by borrowers to lenders and fees earned from facilitating their connection.
At the end of 2021, a range of events exposed the threats and risks of decentralized finance that also undermine trust in DeFi platforms.
Although the decentralized finance sector is still in its early stage, DeFi continues disrupting types of traditional finance such as banks or brokerages by allowing automatic execution of payments via smart contracts on the blockchain.
The growing popularity of cryptocurrencies and their broader adoption is a result of emerging blockchain technology products and services developed.
Also, many DeFi platforms tend to offer a wide range of services, including lending, borrowing, trading, and asset management. Soil is one of the projects targeted to ultimately reshape the finance market with the massive potential of DeFi.
What Is Soil?
Today, most startups and platforms are working to raise capital but have not found the right VCs with which to secure funding. For those platforms with a solid business plan but no/little funding, it can be very frustrating to be held up from making it a reality.
They may consider alternative sources of capital and opportunities that leverage decentralized finance and blockchain. Understand that, Soil is a protocol that would be available to other businesses as a debt marketplace.
The team at Soil is planning to broaden its product portfolio by providing instant access to cash on customer bank accounts, backed by corresponding crypto assets locked on the Soil protocol.
Furthermore, they are actively working towards developing their own fully independent stablecoin, which will remain insulated from traditional banking and monetary systems.
In addition, once they attain critical mass as an organization, determined by Total Value Locked, they will further enhance the functionality of the Soil protocol, including the introduction of a decentralized debt exchange.
How It Works
Built on the Polygon blockchain, the Soil protocol leverages blockchain technology to build a debt market, where companies can obtain alternative financing for their operations, which is distinct from conventional finance.
Soil functions as a debt marketplace, facilitating connections between lenders and borrowers.
Soil allows lenders to offer their stablecoins to these businesses. In this way, crypto lenders contract cash flows to repay loans and interests with financial streams generated by companies operating in the traditional economy.
Meanwhile, it helps borrowers quickly access fiat money to finance their operations.
As such, cash flows generated on crypto loans originated on the Soil platform are not directly susceptible to crypto market cycles and particular token valuations. Therefore, lenders and borrowers will receive better protection against market volatility as well as unpredictable market changes.
Revenue is generated through the arbitrage of the cost of capital. For instance, a crypto investor may earn a stable yield of 8% on their loan, while a corporate borrower pays 12% interest on the same loan, resulting in a spread of 4 percentage points, which serves as commission.
The platform has two types of clients: Institutional investors (fund clients) interested in stable yield on stablecoins, and individual investors interested in passive income on their stablecoins.
In addition to these two target groups, Soil also focuses on the success of its ICO, possibly on a centralized exchange. The team targets knowledgeable users of DEFI protocols who are looking for a haven for their stablecoins to combat inflation.
Tokenomics
$SOIL will entitle token holders to higher yields on crypto loans, cash loans, and staking rewards paid out in the token. It is also to be used to pay protocol fees and to participate in Soil governance by creating and voting on certain proposals.
$SOIL will be distributed as follows:
- Seed: 8.5%
- Private: 12.5%
- IDO: 3%
- Staking Rewards: 10%
- Lenders Incentives: 12%
- Liquidity: 15%
- Ecosystem: 10%
- Treasury: 14%
- Team: 15%
What Makes Soil Unique?
Unlike other hybrid protocols in the market, Soil’s business model is significantly different as it can reduce the risk for lenders and improve project scalability. The platform offers a simple and transparent product for liquidity providers, especially if it does not they do not transfer default risk to them.
In Soil pools, the platform allows users to choose their investment duration, and the yield is a consequence of their choice.
All the pools are equally secured, therefore, users will not have to profile their risk as they usually do in other protocols where they choose between Senior and Junior tranches and decide whether to bear the first or second loss in case of default. According to Soil, all users in one pool are entitled to the same yield.
The fact that face-to-face, crypto lending has a higher risk rate for the lending party. There is no federal guarantee.
The power of a self-managed smart contract can provide both transparency and security for the situation, as the money can be held in trust in the event of a default, and the contract will initiate a payout to the lender should a default occur.
Soil further enhances its risk profile by providing additional security in the form of a Guarantee Fund. The main objective of the protocol’s Guarantee Fund is to enhance investment security for users.
In addition to covering default risks, the fund is designed to safeguard loan repayments and prevent early mass repayment requests.
The Guarantee Fund is established as a smart contract with locked-in funds, which guarantees loan repayments up to a specified amount. This Fund functions similarly to Deposit Guarantee Schemes in the European banking system, providing a safety net for bank customers.
Not only that, but Soil’s operating model also ensures the reliability of the assessment of potential borrowers. Its investment team has a proven track record of success, having managed funds with a total AUM exceeding $5 billion across a diverse range of debt, global macro, and real estate strategies.
They have allied with a regulated and supervised private debt fund Mount TFI (a leading fund in CEE) with a transparent risk management policy and a specific Default Reserve in the event of a borrower’s default.
The Fund maintains a specific Default Reserve (historically confirmed at around 0.5%) that acts as a safety buffer and covers the gap in cash flows in case of default by one of the borrowers. The cost of handling defaulted borrowers and the Default Reserve is included in the Fund’s operating costs and has no impact on Soil’s cash flows.
On the other hand, Soil provides better attractive, fixed, and secured yields on stablecoins rather than major players in the DeFi market.
As said, it generates yield in the “real economy” in real currency. It also means the platform does not base its business model on self-printed tokens. Therefore, they are not exposed to the volatile crypto market. Soil secures its operations with cash flows generated by operating businesses, additionally secured by collaterals based on real-world assets.
Thanks to its connection with the traditional economy, Soil brings tangible yield to crypto and offers a secured and attractive yield of around 8% APY denominated in stablecoins, with the option for additional profit paid in Soil’s native token.
Soil is Building Better DeFi
While most DeFi protocols secure their stability with fragile collaterals consisting of one class of correlated assets such as crypto tokens. Soil is the one that not only brings the crypto world with the traditional economy but also mitigates the default risk by collecting a diversified class of Real World Assets and implementing a Guarantee Fund.