Users who are lending tend to want to lock in high interest rates, or at least do not want to see their interest rates fall.
Conversely, borrowers want certainty over their interest rates.
The easiest way to do this is to set fixed rate, fixed term loans, but these are rigid and fail to give users the full flexibility of DeFi.
We are introducing the proposal to create SUMA assets - assets powered by UMA Protocol that track the real value of lending & borrowing rates for all DeFi platforms
SUMA assets provide exposure to the interest rate directly on various DeFi products.
A user coming from CeFi to DeFi wants to place her funds in a secure, interest-bearing "checking account" with full flexibility on withdrawal. She wants to maximize return while keeping flexibility
She visits dYdX or Compound and sees interest rates for USDC, her preferred stablecoin, at nearly 10%! She doesn't know if they will stay that way though.
She then allocates a small percentage of her portfolio to hedge against the risk of the interest rate moving against her
Additional Scenarios to be added soon!
All SUMA assets in v1 will be valued according to the following formula:
Price = 100 - leverage ( interest rate in % )
Thus, users can choose how much to long or short this asset to cover their portfolio needs. In scenario 1 described above, the user may decide to go create a UMA token (or use an existing one) and sell/short the token for the interest rate of her desired product and term-length, thus giving her insurance incase the interest rate decreases for her DeFi.