DeFi token holders alert: Ribbon Finance’s lend product poses risks, argues analyst


  • Ribbon Finance, a suite of DeFi protocols that supports traders poses serious risks according to analysts. 
  • The platform is providing undercollateralized lending for market makers like Wintermute, and suffers from capital inefficiency. 
  • Analysts argue that in the event Wintermute faces a credit crunch, retail lenders won’t stand a chance to recover their funds. 

Analysts believe Ribbon Finance’s lend product is a serious risk for retail lenders. Ribbon lend offers uncollateralized lending to approved market markers (MM) and in cases like Wintermute, the platform failed to take note of the MM’s credit profile. 

Also read: JUST IN: Mastercard will help banks offer crypto trading services to clients

Ribbon Finance’s lending platform has a capital inefficiency problem

Forecastoor, a pseudonymous crypto trader and analyst evaluated uncollateralized lending platforms and the risks they pose to retail lenders. The analyst identified that both Ribbon Finance and Clearpool Fin have lent to market maker Wintermute however the rates differed. Ribbon Finance charges 7% Annual Percentage Rate (APR) while Clearpool Fin charges 11.64% APR based on Wintermute’s credit profile. 

Marketmaker Wintermute recently lost $160 million to a DeFi hack and repaid its $92 million TrueFi loan one day before the due date. The popular market maker has lost considerably large sums of money to hacks in the DeFi ecosystem and its credit profile is severely compromised. 

Forecastoor argues that in the event that Wintermute faced a credit crunch, the market maker would have a high incentive to borrow its entire liquidity requirement from the Ribbon Finance Lending Pool (LP). This would essentially mean all lenders would be locked in and unable to withdraw their funds. 

Ribbon Finance’s lending product has no predefined loan tenure – meaning deadline for repaying the debt – therefore as long as the market maker pays back minimum interest, they can avoid default. However, this also means retail lenders would remain locked in and unable to withdraw their capital since it could not be classed as a technical default. 

Retail lenders stand no chance even if the sentiment turns bearish and all liquidity from the pool is withdrawn. Withdrawals are processed on a first-come-first-serve basis and any available liquidity will therefore get removed by Ethereum arbitrage trading bots (MEV bots). 

Retail lenders need to be cautious with Ribbon Finance

The analyst therefore recommends that retail traders be cautious when lending with Ribbon Finance and be aware of the serious risks possed by the platform’s lending product. 

 


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended Content

Editors’ Picks

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: BTC declines as resistance emerges near all-time high

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: BTC declines as resistance emerges near all-time high

Bitcoin and Ethereum are approaching their key support levels, and a sustained close below these marks could lead to further declines. 

More Cryptocurrencies News
TON set to launch synthetic Bitcoin to boost its DeFi solutions

TON set to launch synthetic Bitcoin to boost its DeFi solutions

TON revealed its plan on Thursday to launch a synthetic Bitcoin token on its blockchain, allowing users to trade, stake, and earn yield using BTC. Following the announcement, TON is down over 3%.

More Ton News
Maker Price Forecast: MKR could stage 40% rally

Maker Price Forecast: MKR could stage 40% rally

MakerDAO is up 2% on Thursday and could be set for a 40% rise in the coming weeks if it successfully maintains an extended move above the descending trendline of a falling wedge. On-chain data also supports the bullish outlook after a four-month-long decline.

More MakerDAO News
USDT market cap crosses $120 billion as stablecoins continue their uptrend

USDT market cap crosses $120 billion as stablecoins continue their uptrend

The stablecoin market cap continued its uptrend in October, characterized by USDT reaching a $120 billion market cap, according to a CCData report on Thursday. This indicates that investors are preparing liquidity to fuel more demand.

More USDT News
Bitcoin: New all-time high at $78,900 looks feasible

Bitcoin: New all-time high at $78,900 looks feasible

Bitcoin price declines over 2% this week, but the bounce from a key technical level on the weekly chart signals chances of hitting a new all-time high in the short term. US spot Bitcoin ETFs posted $596 million in inflows until Thursday despite the increased profit-taking activity.

Read full analysis
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

BTC

ETH

XRP