Why We're Building Maple Finance

Getting Started Feb 01, 2021

Bringing Credit to Ethereum

As Maple nears its on launch on Ethereum mainnet, we wanted to share some more background on why we're building Maple. As we fell down the crypto rabbit hole and explored how we could best contribute, we decided to focus on improving the flow of capital to better direct it to where it can add the most value. Having previously worked in commercial lending and traditional finance, we know first-hand the importance of credit markets for innovation.

On-Chain Credit: DeFi's Missing Lego Piece

For centuries, economic growth was driven by credit based on the trust that payments would be made in the future. However, it has been absent from DeFi - until now.

While lending has been a breakout sector in DeFi, Aave and Compound do not extend credit because they require all loans to be overcollateralized. This approach has kept these platforms solvent, but it's highly inefficient and has precluded the fundamental features of credit markets like trust and reputation.

We built a decentralized credit market because we believe that DeFi is a transformative industry that will require credit to grow. Improving the capital efficiency of lending markets benefits the entire industry because it allows more capital to be loaned out for every dollar deposited. Expanded credit will also help thriving companies who would prefer to reinvest in their business rather than stockpile collateral for overcollateralized loans.

Fueling the GDP of Crypto

On-chain credit will send the GDP of crypto parabolic by giving profitable crypto-native corporates the ability to reinvest capital in their business. They will be able to borrow capital from any number of lending pools funded by the global, permissionless DeFi ecosystem. By arming borrowers with direct access to capital markets, bottlenecks caused by rent-seeking gatekeepers are removed. Borrowers have the ability to offer terms to multiple pools of lenders naturally leading to better price discovery and optimizing borrowing terms.

Historically, credit markets have been opaque and dominated by vested interests. Decentralized credit markets provide full transparency to both sides of the market. On-chain credit markets built on Ethereum have auditable loans and liquidity reserves, giving liquidity providers more transparency on loan performance, returns and solvency. This, in turn, leads to better price discovery and over time terms for borrowers.

Famed investor Charlie Munger once said, "show me the incentive and I will show you the outcome," and indeed, TradFi markets are replete with examples of egregious mismanagement because the incentives of banks, fund managers and investors were misaligned. The programmable nature of decentralized protocols also opens up the design space for incentive alignment. This is best demonstrated by mechanisms like "staking", whereby delegates place skin in the game for lending pools.

Let them eat cake

Improved access is not limited to borrowers. Whereas, historically, opportunities to deploy capital at high yields were reserved for HNWI and institutions, Maple now democratizes access. Just as anyone can become an LP on Uniswap, anyone will eventually be able to pool capital and earn a yield from lending to prime corporate borrowers.

Long-term focused investors have been hard-pressed to earn a competitive yield on their assets. However, Maple was built with patient investors in mind. Lending to premium crypto-native institutions like funds, market makers, and miners offers a more sustainable source of yield built upon the cashflows of crypto-native businesses delivering valuable services to their customers.

Join the Maple Community

We'll be sharing more information on the Maple protocol and ecosystem over the next few months as we get closer to launch. If you're interested in learning more and getting involved with Maple before launch, join our Discord community and follow us on Twitter.