Introduction

Maple Finance is a decentralized corporate credit marketplace connecting institutional crypto-native borrowers with DeFi depositors. The protocol is one of the few lending platforms in the market today that provide undercollateralized loans – a key primitive required for DeFi to truly reach mainstream adoption.

Today, DeFi lending platforms like Compound and Aave offer permissionless loans facilitated by smart contracts. What does this mean?

  1. Anyone can borrow on the platform (permissionless, democratized access) because they are required to post collateral exceeding the value of the loan itself
  2. Overcollateralization provides a capital buffer in volatile market conditions; if the collateral value gets too low, smart contracts automatically liquidates the collateral to protect the loan principal
  3. Overcollateralization prevents true credit creation and limits capital efficiency, preventing businesses from accessing credit for productive use. As a result, on-chain borrowing today has primarily been retail-driven, used to facilitate additional leverage and more often than not, speculative trading

Undercollateralized lending in crypto, on the other hand, has been difficult to crack because of two key challenges. For one, protocols currently lack the tools to properly assess the credit risk profile of anonymous borrowers from their on-chain activity, as the use of on-chain credentialing for non-collateralized lending is still in early stages of development. Secondly, low collateral values do not provide the necessary capital buffer to protect the loan principal.

Maple Finance solves these two key problems above by reintroducing elements from the lending models in traditional finance. First, they employ 3rd-party agents called ‘Pool Delegates’ to underwrite undercollateralized, permissioned loans to KYC’ed, positive cash-flow businesses. Secondly, they ensure the loan principal is fully protected through the use of 3rd-party agents that provide insurance in the form of a capital buffer, or “Pool Cover”. These two elements are, of course, tied together through their well designed tokenomics model, facilitating a lending flywheel that has resulted in Maple originating $1.5bn loans to date.

Tokenomics

Fundamentally, Maple’s business model is no different to how lenders operate in traditional finance. Revenues consist of interest income and loan origination fees, while major expenses consist of funding costs, underwriting fees, and insurance premiums (this one isn’t as common). At the same time, Maple completely differentiates itself from normal lenders through the utility and mechanism design of its native the token, MPL. MPL is an example of how tokens, when used right, can help to enhance solid business models.

A zoomable diagram of its Tokenomics can be found here.

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Lenders

Lenders, or depositors, get access to the private credit market, earning higher interest on their capital for risk they take on in extending undercollateralized loans.

Borrowers

Borrowers are KYC’ed, positive cash-flow businesses. Currently, this includes delta-neutral market makers or CeFi platforms, though Maple has plans on expanding into new verticals to include crypto mining and fintech companies as well. Borrowers are responsible for paying the loan origination fees and interest fees. In the future, borrowers who staked, or lock up, their MPL will also receive rebates on their borrowing costs.

Pool Delegates - (Underwriters) Pool Delegates are professional managers with expertise in credit underwriting. They are responsible for all aspects of the underwriting process, performing KYC on borrowers, assessing their credit risk, and negotiating loan terms. For this, they are compensated with a portion of the interest income and loan origination fees. Given pool delegates do not use their own funds to directly underwrite the loans, they are required to assume a portion of the underwriting risk by becoming a pool cover provider. This helps to align their interests with the protocol and all other market participants.

Pool Cover Providers (Insurance)