Texture - P2P Lending on Solana: What You Need to Know
Solana Altcoin Borrowing, 7-day loans, & More
Yesterday, we released a report for our premium members on Aave, outlining a unique edge that OG lending markets might have. It is established protocols and tokens like $AAVE that may offer compelling opportunities for those with a positive outlook on what DeFi has to offer. Competition in the lending markets as a whole is increasing with Euler v2 around the corner and Morpho's continuous onboarding of vault curators and risk managers. In terms of liquid tokens, we are at a pivotal point in the markets right now, with the upcoming $ETH ETF inflows being largely priced in already…
One area in lending that doesn’t have much competition at all is the P2P (peer-to-peer) lending space. As one might expect, there are material differences between the lending we’ve become accustomed to and what P2P DeFi lending entails. At one point, P2P was the primary means of acquiring or selling BTC. P2P trading markets still see huge volumes mostly in developing markets where trading crypto or using exchanges is not expressly permitted. These markets facilitate onboarding fiat and offramping stablecoins and majors, primarily. In DeFi, where regulations don’t apply nearly as much, P2P is only a thing when it’s necessary, such as with NFTs that don’t benefit from being placed in a communal pool. One protocol in the NFT lending space is Sharky, providing short-term NFT lending, capping borrow durations at 16 days, with the majority of repayments being due at just 7 days.
In today’s edition, we’ll be focusing on Texture, a DeFi protocol operating a P2P lending and borrowing platform. Operating on Solana, users can quickly borrow against provided tokens to take advantage of market short-term market swings…
Stay informed, stay alert ⬇
Background on Texture
Texture pits together lenders and borrowers directly interact with each other. The main thing this does is enable less strict and uniform LTVs based on individual preferences. Borrowers can take on more risk and lenders can earn more. Traditional lending protocols can’t operate in this manner or else risk the health of the whole protocol. In this sense, Texture takes isolated pools to a different level by isolating every individual loan, and capping length of loans at one week to specialize in short-term lending and eliminate the risk of overhanging ‘bad debt’. This can be seriously detrimental to lending platforms as seen in the Curve debt debacle.
Allowing lenders and borrowers to set their own terms reduces scalability, but can still see a lot of action if the demand is there. P2P points trading on Whales Markets saw significant volumes, mostly because the platform was one of just a few ways for intangible points to be escrowed and then ultimately exchanged for actual crypto upon TGE at a pre-set price. To date, Texture has facilitated 15,000 loans, offering 60+ SPL tokens to lend.
Where might P2P lending come in handy? The main thing here for lenders is being able to actually earn from SPL altcoin deposits, the majority of which can only be used to earn points on legacy Solana lending protocols. Borrowers obviously have the ability to borrow against numerous tokens that they otherwise wouldn’t be able to use as collateral.
There are no liquidations for the duration of loans, which are capped at 7 days. This simplifies things and Texture provides a UX that directly gives users what they can access from traditional lending protocols without liquidation risks or LTV restraints that are preset by protocol policy. Looping is also built into the protocol for those who wish to engage in this practice. Of course, this comes at the cost of higher interest payments on an annual basis, and being forced to pay back a loan in just a week or have collateral seized. This makes borrowing optimal for small and short bets aligned with market conditions when there’s momentum in a given direction. A wide variety of stablecoins, memecoins, SOL LSTs, and other alts can be borrowed against, borrowing in either SOL or USDC. Borrowing has a 0.14 to 0.21% fee deducted from collateral when locking for 7 days.
Of course, lenders can adjust their terms based on market conditions as well if they know demand will be higher for certain assets. For lenders, because of the narrow repayment windows, there is more risk, and they are compensated more than they otherwise likely would be on traditional lending protocols. Specifically, lenders can earn 200%+ APY on their USDC or SOL, for any token borrowed. It’s worth noting that all offers have the same APY, so the differentiating factors for borrowers to choose from are total size of the deal and the LTV. Higher LTVs are prioritized, and lenders can tweak these parameters to be in tune with the general market. In the event that borrowers don’t repay, which is much more likely than when using traditional lending platforms, lenders receive collateral after a week has passed, so it’s in the best interest of the lender to vet what they are underwriting and make sure that they are potentially OK with having exposure to this asset over the next 7 days. Interestingly, both lenders and borrowers can use their own price source, at their own risk. Users can bring their own oracle, as it’s the borrowing counterparty’s responsibility to understand and agree to this term.
Texture is in its beta phase, and users are “advised to use it with caution”. The team is working on having independent audits. For all users, there is the prospect of earning PXLS, Texture’s version of points. This campaign is currently in its second season and whether it will result in a native token remains to be seen. Referrals can be used to share 10% of referred users’ points.
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