If you can’t beat them, join them.

I'm pretty sure this is the thesis behind CEXes listing low market cap memecoins these days. It was pretty far-fetched in cycles before this, but given how unpredictable the market currently is, it’s almost non-negotiable.

This invariably shows the desperation for the unprecedented volume that memecoins attract. At the end of the day, more volume equals more money.

The move also affirms that memecoins are here to stay. While some people think they’ve sucked the liquidity out of other sectors like DeFi, others are thinking about synergizing with memecoins — again, if you can’t beat them, build around them, innit?

This sort of thinking aligns with building use cases around memecoins. I mean, it’s a $55 billion market category and growing. The earlier other sectors, like lending, tap into it, the better for us all.

The only issue with building around memecoins is that people think of it like building a concrete mansion on bamboo stick foundations — the risks are just not worth it.

But what if there’s some way around it? What if we could actually harness the liquidity in the memecoin sector while controlling the risks associated with its inherent volatility to build a money market that allows for a couple of things:

• Memecoin holders avoid selling their assets yet access liquidity by depositing their memecoins and borrowing stables, thereby holding their memes for a tad bit longer (to potentially see new highs).

• Platforming a fresh $55 billion liquidity layer that unlocks additional composability for high-attention, high-volatility assets.

Now, you trust that we won’t leave you hanging, right?

There’s actually a clever way to tame the volatility — and it’s seriously cool. Stick with us for a few more paragraphs, and we’ll show you how to borrow against your memecoins via Blendy.

What is Blendy?

Built on Solana, the hub of memecoin activity, Blendy is a money market that allows degens (those deep in the trenches) to collateralize volatile mid-market cap tokens like memecoins to borrow stablecoins.

The word volatile is scary because what if these volatile mid-market cap assets dump like crazy (as they often do), leaving the depositor with a big bag of debt?

Blendy solves this through two modules: The Throttle Module and the Moon Module. These are risk modules that work together to mitigate the downside risks associated with volatility.

So, let’s dive into them.

What are the Blendy risk modules?  

Blendy employs two proprietary risk modules to protect users from downside volatility.

The Moon Module

Blendy manages volatility risks through the payment of a safety fee. In this scenario, the user deposits their memecoin as collateral, but to borrow their desired stablecoin, they have to provide a safety fee, which is then put into a hedging pool.

But this isn’t where the risk is protected. A further step is taken.

Blendy uses the fees paid into the hedging pool to buy put options. This action is what hedges or insures the user against downside volatility.

Now you guys know the crypto options market isn’t that mature yet. Hence, Blendy collaborates with retail investors, foundations, and partner protocols to buy put options via the peer-to-peer (P2P) rails at a fairly discounted price based on the time-weighted average price (TWAP) of the underlying asset.

If you’re wondering what put options are, they are basically contracts that accord the holder of the contract the right to sell an asset at a strike price (an agreed-upon price) within a period of time.

The way this works is that once the put option is purchased, the price of the collateral (volatile asset) is locked in, keeping it safe for the first eight hours.

It sticks to eight hours because the Moon Module uses European strip put options, which have eight-hour expiries.

Within these eight hours, the borrower is not at any risk of being liquidated, irrespective of the price action of the collateral asset.

But what if the eight-hour period ends? Would you, the borrower, now be exposed to downside volatility? Doesn’t this delay liquidation for eight hours alone? How would you spend the money you borrowed in eight hours and repay your debt?

Well, once the eight-hour period expires, the put option is re-struck immediately, allowing the protection mechanism to be extended in a loop.

The module's time frame is optimized for setting at weekly and monthly intervals, thereby allowing for an efficient system regardless of market conditions.

Another important aspect of the Moon Module is that the strike price range on the purchase of put options is optimized to capture severe volatility scenarios cost-effectively. Hence, they are usually out-of-the-money (OTM).

The Throttle Module

Blendy is a money market, and as such, it would need to determine lending and borrowing rates. It does this through the Throttle Module.

The Throttle Module encapsulates how Blendy determines rates through a dynamic system in which rates are adjustable based on real-time market conditions, i.e., pool utilization, or, in simpler terms, pool supply and demand.

The dynamic approach to determining rates ensures that the system is always stable, regulating how much can be borrowed from or deposited into a pool.

How do loan-to-value ratios and liquidations work on Blendy?

Blendy functions like any other on-chain lending protocol with a loan-to-value [LTV] ratio. However, there’s a wee bit of a twist.

Remember that we initially mentioned “safety fee,” that’s paid into a hedge pool and used to purchase put options against the deposited collateral?

Well, Blendy incorporates this process (Moon Module) with the LTV ratio to ensure that borrowers do not experience total or full liquidation at all times.

Should the price of the collateral asset drop significantly, the Moon Module will be fully activated. The user’s collateral will be liquidated and taken over by Blendy.

Next, Blendy will exercise the put option they had purchased, thereby selling the asset back at the pre-determined price.

However, if the drop in the value of the collateral asset is significant but not enough to trigger the affixed LTV ratio, a partial activation will occur.

The put option purchased with the safety fee will be partially activated to ensure the percentage of downward volatility that occurred. In this regard, the user’s entire collateral will not be liquidated or claimed by Blendy.

Blendy monitors the market value of collateral assets deposited into its pools to watch out for downside volatility. When collateral drops below the LTV, a liquidation event is triggered. The borrower is notified of the event, and the collateral is sold to cover the debt.

Fees

In addition to the safety fees paid to the hedge pool by users who deposit collateral and borrow stablecoins, the platform also charges a deposit fee.

However, upon repaying the loan in good faith or via liquidation, the borrower will receive the deposit fee back.

Conclusion

Blendy presents an opportunity to unlock previously unutilized liquidity in the meme sector, allowing such liquidity to flow into DeFi.

This has the potential to serve as a new liquidity layer that unlocks new primitives built on highly volatile assets, thereby solving the deficit of quality DeFi apps on the Solana network.

It is important to note that the risk modules employed here are tested and have a high success rate in ensuring that users are protected and the protocol is stable.

They will also undergo an audit when live to ensure an extra layer of safety for users.

Now, before you say, "Who will put money into this, considering DeFi's performance in these markets?"

It’s important to understand that Blendy is not just DeFi but also MemeFi, an emerging sector that VCs are keen on. In fact, Blendy recently announced a pre-seed raise (amount undisclosed) led by UOB Ventures and Signum Capital.

We are particularly keen to see how this will be welcomed when live. For now, the testnet is live and open to anyone to give it a try.

Happy degening everyone!