Isolated Modules

Isolated Collateralized Debt Positions

Lending protocols like AAVE enable users to lend their cryptocurrencies to others in return for interest payments, or to borrow cryptocurrencies by providing collateral to secure the loan.

On the other hand the main function of a CDP protocol like MakerDAO is to allow users to lock up their cryptocurrency as collateral to generate or mint a new cryptocurrency, usually a stablecoin. This is a form of self-collateralized debt.

Since CDPs do not involve lending to another party but rather the creation of debt against one’s own collateral, there is no counterparty risk. In traditional lending protocols, the borrower's inability to repay can pose risks to the lender

isolated modules allow different positions to be risk-independent even when using the same collateral. Each position is also viewed separately even if executed from the same smart contract. 1 user can have many isolated positions that are risk-independent of each other, therefore, an unhealthy position does not affect other healthy positions.

Protected Deposits

When collateral is deposited into a module, it is are not being borrowed by other users, hence the abscence of yield. Borrowable deposits inherently allow traders to create short positions on tokens. Cascading liquidations in tokens such as $OHM in the past had a significant impact on the price of these tokens and resulted in the loss of many users’ funds due to liquidation penalties.

Single Markets

All tokens in this system are paired with trenUSD, creating a single market for every token asset. This approach prevents fractured liquidity and enhances protocol efficiency, contrasting with pure lending pair methods where each new pairing generates a separate lending market.

While some protocols allow the creation of markets for any asset, attracting liquidity is a separate challenge. To entice lenders, these protocols often offer higher interest rates to offset the risks. Instead of this approach, TrenDAO assumes responsibility as the sole lender of the protocol and the protocol incentivizes participants who stake trenUSD and hold veTREN. The protocol, acting as the sole lender by minting trenUSD for each pool, allows the DAO to capture 100% of the supply side interest. This model enables the protocol to adopt a loss leader strategy, offering lower collateral rates than competitors to drive growth, while offsetting losses with interest from other assets. Stakers of trenUSD benefit by gaining a diversified lending position, providing a liquidity backstop in the event of bad debt.