Flux Finance is releasing a decentralized lending protocol that can support both permissionless cryptoassets as well as tokenized securities with transfer restrictions.
Flux Finance follows a peer-to-pool model and is designed to always quote a lend and borrow rate, ensuring constant liquidity. Flux is an evolution of earlier DeFi lending protocols like Compound and Aave, which facilitate lending against pure cryptocurrency collateral like BTC and ETH, and which functioned without defaults during a tumultuous 2022 as centralized lenders collapsed. Flux introduces some changes to these protocols in order to support permissioned collateral in a compliant manner. In doing so, Flux hopes to onboard tokenized securities and other real world assets as collateral, which currently offer superior risk-adjusted yields with more liquidity than natively on-chain assets.
Flux was developed by Ondo Finance, a US-based software development and asset management firm. Ondo Finance also developed the ONDO tokens, which will be used to govern Flux Finance. ONDO token holders will vote to select the supported assets and relevant parameters for the initial markets on Flux. One pending proposal includes support for the stablecoins USDC and DAI, as well as for OUSG, a tokenized exposure to U.S. Treasuries recently launched by Ondo Finance. If the vote passes, investors would be able to lend stablecoins against U.S. Treasuries and, on the flip side, to lever up exposure to Treasuries.
Flux is launching at a time when on-chain yields are very low – 1-2% p.a. across Compound, Aave, and Curve – while U.S. Treasury yields are expected to soon exceed 5%. If successful, Flux and other protocols interfacing with tokenized securities may help to bridge that gap.