What is OpenLeverage (OLE) and How Does it Work? | KuCoin Crypto Gem Observer

2022/07/06 10:08:42

Decentralized Finance (DeFi) has played a significant role in disrupting the traditional finance sector. Margin trading platforms have been revolutionary, allowing traders to long or short crypto trading pairs. This product offers traders access to more capital by enabling them to leverage their positions. As a result, they stand to realize more profits on successful trades.

However, most crypto margin trading platforms are centralized. This means an intermediary, such as a broker or centralized exchange, provides the funds that traders borrow. As a result, centralized trading platforms benefit the intermediaries, introducing the same centralization problems that crypto seeks to eliminate.

Looking to address this problem, OpenLeverage launched as a permissionless margin trading platform. Through the permissionless setup, OpenLeverage enables lenders to provide funds that margin traders can borrow. In return, the platform’s lenders earn interest based on market demand. Check out what is OLE by watching this video on KuCoin YouTube channel: https://youtu.be/UAptt3Af_Gk

What is OpenLeverage?

OpenLeverage is a permissionless lending margin trading platform that enables traders or applications to long or short any crypto trading pair on decentralized exchanges (DEXes) efficiently and securely. The protocol runs on BNB Chain and Ethereum and connects users to liquid DEXes like Uniswap, PancakeSwap, and SushiSwap, among others.

Featuring two different pools with varying risk and interest rates for each pair, OpenLeverage allows traders to invest depending on how much risk they are willing to take on. Additionally, the platform offers traders the benefit of calculating the collateral ratio with real-time automatic market maker (AMM) prices for any trading pair on a DEX.

Moreover, OpenLeverage uses time-weighted average price (TWAP) to create OnDemand Oracle, which updates automatically based on trading interest. This feature helps prevent price manipulation in the permissionless market.

On top of this, OpenLeverage features an intuitive interface to simplify the margin trading process.

How Does OpenLeverage Work?

In OpenLeverage, borrowers and trades are anonymous but transparent. However, they align with the rules of smart contracts. All funds are stored on smart contracts until conditions to close trading and lending positions are met.

OpenLeverage allows anyone to create lending pools for any token listed on a DEX. After creating a lending pool, other users need to add liquidity, which allows other traders to borrow. Lenders have varying interests depending on the utilization of the pool.

Users that supply funds to lending pools get LTokens, an interest-bearing token. LTokens accumulate interest through its exchange rate over time. Each LToken is convertible into an increasing amount of its underlying assets. Users can stake LTokens on yield farms of other projects to get more rewards.

Traders can choose to borrow from either pool of a trading pair and swap to another token as a leveraged position by staking a given amount of tokens as collateral. Once the trader closes the position, OpenLeverage repays the borrowed loan with interest. The trader then gets their deposit plus or minus any profit or loss.

Each pair has its collateral ratio due to varying volatility in different coins. The governance process can change the collateral ratio for each market to protect lenders’ best interests.

Traders need to maintain the collateral ratio above the market limit to avoid liquidation. Provided a trader’s collateral is above the collateral ratio, they can open leveraged positions, starting from 1.1x to 7.1x.

Every trade on OpenLeverage is executed on a DEX. The AMM calculates the entry or exit price, just like how prices are calculated on Uniswap. OpenLeverage charges a 0.22% transaction fee on top of the trading fee that a DEX charges.

OpenLeverage allocates 33.3% of the transaction fee to the isolated insurance fund to protect lenders against unexpected losses. 46.67% of the transaction fee goes to the staking reward program, and the remaining 20% goes to the dev fund for sustainable development.

Who Created OpenLeverage?

OpenLeverage’s core founding team prefers to remain anonymous to better focus on developing the protocol. However, the team comprises serial blockchain entrepreneurs, derivatives trading experts from leading banks like Goldman Sachs and HSBC, and experienced blockchain developers.

What is OLE Used For?

OpenLeverage incentivizes market liquidity and trading by distributing their native token, OLE, to lenders and traders based on participation. Traders can earn rewards for margin trading on any valid pair. On the other hand, lenders can get OLE rewards by depositing assets to valid lending pools. Users that engage in lending and trading get more rewards, along with inviting new users to the platform.

When users provide OLE-BUSD liquidity on a designated partner DEX and stake their LP tokens on OpenLeverage into a time-escrowded contract, users receive xOLE in return. xOLE is OpenLeverage’s governance token. Users can lock their LP tokens for a duration between 2 weeks to 4 years, with rates of xOLE higher for a longer duration, up to 436%.

There are numerous benefits and privileges provided to xOLE holders:

Holders receive 50.00% of generated trading fees from the epoch. The accumulated fees will buy OLE from the open market for the 7 days after the end of each epoch, then distribute equally to xOLE holders.
Users receive more OLE tokens, further increasing the field for LP locking.
Up to 2.4x earning boost on lending and trading according to the LP value locked and the time left to unlock.
Participation in governance for incentive distribution.

What Makes OpenLeverage Unique?

Unlike centralized crypto margin trading platforms, OpenLeverage is permissionless. This means anyone can create lending pools for any trading pair available on a DEX without seeking the permission of a centralized entity.

Additionally, the protocol’s design is resistant to flash loan attacks. In OpenLeverage a user cannot open and close a position in the same block. Additionally, the protocol refers to the OnDemand Oracle to ensure the liquidation price is valid.

This feature helps prevent attackers from manipulating prices, triggering liquidations to earn money, or creating cascading liquidations.

Closing Thoughts

By operating a permissionless crypto margin trading protocol, OpenLeverage positions itself to disrupt the DeFi sector. The protocol unleashes the true potential of decentralization by enabling anyone to create a margin trading market and earn benefits from lending or borrowing crypto assets.