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Why Kylix exists

Lending protocols already exist. The useful question is what the collateral does while a loan is open, and what happens to it when the loan fails.

What goes wrong

Most pools share the same three faults.

  • The interest curve stays flat until the pool is almost fully borrowed, so lenders have little reason to deposit early.
  • Collateral sits in the position and earns nothing for the borrower, even when that asset has a liquid staking market.
  • Liquidation sells into a thin book, or at a fixed discount, and both the borrower and the pool take the loss.

A longer list of markets does not fix that. Wrapping the asset, so it can move to a chain that already has a pool, does not fix it either.

What Kylix does

Kylix is an over-collateralized lending protocol on Polkadot Hub. Positions are stored in Hub state. DOT and USDC are the first markets.

  • Self-repaying loans. Collateral moves into a yield-bearing position, and that yield pays the debt down. If the yield is lower than the borrow rate, the borrower still owes the difference.
  • A polynomial rate. Lenders are paid while utilization is still low, and the rate steepens as the pool fills. The aim is to have liquidity before borrowers are rationed.
  • A liquidation queue. Collateral from an unhealthy position is offered to bidders. The smallest discount fills first. If the queue cannot cover the debt, the remainder is swapped with an external market maker.

You can use the protocol as a lender, a borrower or a liquidator. Fees on borrows and liquidations go to the treasury. The whitepaper sets out how that treasury is split, including the share of KLX that is burned.

What it is not

Kylix does not bridge you in, and it does not wrap your DOT. It is not on mainnet. The public release waits on an external audit and a private test. A date is published when the previous step is finished.

Loans that require less collateral are not part of this version. Later work is a deeper integration with the rest of Polkadot Hub, after the over-collateralized markets are live.