Introducing Seamless Protocol: Enabling Trustless Smart Contracts for Non-Custodial Liquidity Markets

A Collaboration in DeFi

A collaboration between decentralized finance (DeFi) developers is introducing a new non-custodial liquidity market on the layer-2 network Base. This collaboration includes developers from Seashell, RNG Labs, and Loreum Labs, as well as advisers and collaborators from projects like Ampleforth and Uniswap. The result of their work is the Seamless Protocol, a fork of Aave v3 that allows smart contracts with predetermined borrowing strategies to conduct undercollateralized borrowing on-chain.

Undercollateralized Borrowing Explained

Undercollateralized borrowing is not a new concept in the crypto space. Maple Finance, for example, offers undercollateralized products to institutional and qualified investors. However, the process usually involves a combination of off-chain and on-chain steps, where terms are negotiated before a loan is issued on-chain. With the Seamless Protocol, the borrowing strategies are on-chain in smart contracts, providing liquidity suppliers with full visibility into how the funds are used. It is similar to single-purpose loans, where the liquidity supplier knows exactly where the funds are being used and the borrower cannot use them for different purposes.

A Better Fit for DeFi

The Seamless Protocol believes its solution is a better fit for DeFi than other options, such as on-chain reputation scores or on-chain identities. According to a contributor, the protocol's trustless smart contracts system aligns with the fundamentals of decentralization and trust in code over humans. It provides a more efficient and transparent way for borrowers to access additional liquidity with predetermined borrowing strategies.

General Purpose Loans

In addition to the single-purpose loans, the Seamless Protocol also integrates general purpose loans. However, these loans are governed by the usual DeFi lending rules that require overcollateralization. They provide borrowers with the flexibility to use the funds for various situations, but still within the framework of DeFi lending rules.

The introduction of the Seamless Protocol marks another step forward in the expansion of decentralized finance. With its non-custodial liquidity markets and trustless smart contracts, it aims to provide a more efficient and transparent way for borrowers to access additional liquidity in the DeFi ecosystem.