Cog is a new isolated lending protocol that aims to maximize both decentralization and capital efficiency that many existing solutions are currently lacking. The main objectives of Cog, are to help users painlessly deploy permissionless isolated borrowing/lending pools, protect users against interest rate manipulation attacks, and finally, enhance the extremely limited capital efficiency of isolated lending as a whole.
Cog is fundamentally an isolated lending platform where users can supply collateral and/or borrow assets through isolated lending pools. These pools individually provide an asset that can be borrowed under the conditions of agreed-upon collateral. The interest rate and oracle of these pools can also be adjusted, with the collateralization ratio exiting in 3 main risk tiers: low, medium, and high. In addition, Cog features an unique Protocol-Owned Liquidity mechanism which helps smooth out the duration gaps that arise in low-liquidity isolated lending protocols.
Cog also has a built-in vault, so lenders can choose which collateral(s) they want their assets to be exposed to. The vault will then adjust their assets between each Cog Asset and it’s Collateral Pair.
There are two compelling reasons to to incorporate Protocol-Owned Liquidity in an isolated lending protocol.
On one hand, it provides the protocol with permanent liquidity to protect pools from price gauging attacks. This is where whales intentionally drive up interest rates to extract rewards at the expense of other users. By accruing Protocol-Owned Liquidity 3 days after a major spike in interest rates, attackers are unable to harvest the reward delta without taking on significant risk. This situation is modeled below, with an example of how an interest rate might move over time and a given example of where Protocol-Owned Liquidity would begin to accrue.
On the other hand, Protocol-Owned Liquidity greatly improves decentralization since users are encouraged to actively participate on governance decisions that can have real impact.
“I got the best deals anywhere!” - Gadgetzan Auctioneer
Cog works to provide you with the best borrowing terms available for any loan through Liquidity Transmissions (multi-pool routing). Liquidity Transmissions chain together Cog pools to express diverse borrowing strategies across many assets. By borrowing one asset and supplying it to another pool, users can choose whatever collateral asset pair they want, even if it doesn’t directly exist.
Cog also supports fully permissionless pool deployment, which means that any exotic asset with willing lenders is fully supported, opening up many use cases such as
Longing/Shorting of Long-tail assets through looped loans
Leveraged liquidity provision through LP tokens as collateral
Credit pools by giving one party arbitrary collateral tokens, effectively allowing them to borrow as much as possible (similar to Maple Finance)
The unique vaults of Cog also allow lenders to customize their risk profile, and gain the best yields anywhere. If rumors are believed to be as well, each Cog pair will also work as a drop in Yearn V3 strategy.