DeFi Lending: An Overview of Cream Finance

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Last updated on November 17th, 2022 at 01:23 pm

Decentralized Finance (DeFi) is a burgeoning, revolutionary, and brilliant application of blockchain technology in the finance industry. DeFi, as its name implies, is a financial system lacking the centralization element prevalent in traditional finance (TradFi) organizations.

DeFi is a sector in the crypto space dedicated to decentralized financial services. It includes a variety of financial services that anyone can access. These services differ from centralized financial services in that they are managed by decentralized organizations and give customers greater control over their assets.

Smart contracts are an essential component of DeFi platforms. Smart contracts are automated multi-party agreements. They are designed to address the shortcomings of traditional contracts, which can be altered. Usually, they automatically execute themselves once the terms of the agreement are met.

DeFi platforms are typically run by smart contracts to eliminate the need for centralized authorities to interfere with the protocol’s day-to-day operations.

Also within the scope of DeFi are lending platforms, where individuals can offer their idle assets to lending protocols in exchange for returns, while others (borrowers) can access liquidity and pay interest.

Some DeFi lending protocols, particularly the overcollateralized ones, require that potential borrowers upload collateral worth more than the loan. Suppose the collateral falls below a pre-set threshold. In that case, it is liquidated, and the borrower is not expected to repay the loan. This liquidation implies the loss of the collateral provided by the borrower.

DeFi lending protocols do not request collateral for flash loans. From borrowing to repayment, everything is done in a single transaction. The transaction is instantly reversed if the borrower does not repay the loan.

DeFi protocols can take the form of a GameFi platform, a synthetic asset protocol, a decentralized insurance platform, a decentralized exchange, or a Decentralized Autonomous Organization (DAO).

Cream Finance is the DeFi platform under evaluation in this article. Cream Finance is particularly notable for its lending facilities.

This article comprehensively examines the Cream Finance protocol, its origin story, and its impressive suite of functionalities.

What is Cream Finance?

Cream Finance, or C.R.E.A.M. Finance, is an acronym for “Crypto Rules Everything Around Me.” This decentralized lending protocol offers financial services to a wide array of clients, including individuals and organizations. As a multichain protocol, its features are available on Ethereum, Binance Smart Chain, Polygon, and Fantom.

Not only does it offer lending facilities to borrowers, but it also allows holders of idle funds to deposit their assets for a period and earn returns. As with a typical DeFi protocol, the deposit and borrowing features on Cream Finance are managed by smart contracts.

Cream Finance is a fork of Compound Finance that provides peer-to-peer services, with liquidity mining at its core. The underlying principle of this protocol is to create a haven for everyone to access financial services that may have been restricted in the traditional finance (TradFi) environment.

Users can engage in a variety of financial activities, including:

Access to decentralized lending facilities after depositing a certain amount of collateral.
Cream Finance offers liquidity mining features, where users can deposit their idle tokens into a pool and earn variable returns.
The DeFi protocol also allows users to access decentralized exchange services.

What are Cream Finance’s Unique Functionalities?

Cream Finance provides a variety of DeFi services to its large user base, which will be discussed further below.

Decentralized Autonomous Organization

Cream Finance has a DAO, which is in charge of controlling and managing the activities of the DeFi Protocol. Before major decisions are made, the voting session is conducted by the DAO. Several DeFi platforms have recently incorporated a DAO into their governance process.

Staking

Another feature that Cream Finance has under its umbrella is staking functionality. Holders of the native tokens, CREAM, can choose to stake it on Cream Finance to earn returns. Typically, the APY varies depending on various factors.

When users choose to stake their CREAM tokens, they are locked and cannot be used for any other purpose until they are unlocked.

Lending

Cream Finance may offer additional services, but its core features are peer-to-peer lending and borrowing. Before they can borrow other cryptocurrencies, potential borrowers must deposit collateral into their accounts. This collateral must meet a certain benchmark, which is typically higher than the loan amount. When collateral falls below a certain threshold, Cream Finance, like other DeFi protocols, liquidates it.

This means borrowers must constantly monitor their collateral amount in USD to ensure it is greater than the minimum threshold. The collateral’s USD value may fluctuate due to volatility in the cryptocurrency market. Monitoring it alerts the user when it is time to top it up. Cream Finance offers the following lending options:

• Iron Bank

Cream Finance developed a zero-collateral lending feature spearheaded by its Iron Bank, which will only be available for protocol-to-protocol loans. The team believes that “the capital efficiency made possible by protocol-level loans will accelerate our industry’s growth.”

Only whitelisted protocols can access the Iron Bank. They usually have a credit limit they cannot exceed during a given period.

Cream Finance does not require any collateral when a whitelisted protocol requests funds. This prevents protocols from becoming insolvent due to the need to obtain loans. Cream Finance evaluates the risk of a protocol before it is whitelisted.

According to Cream Finance, “the available pool of assets that protocols can borrow from CREAM v2 is currently limited to wETH, DAI, and y3Crv. You can find these and future CREAM v2 assets on Yearn Finance’s lending portal. We will also soon add USDT, USDC, sUSD, mUSD, DUSD, LINK, YFI, SNX, WBTC.”

• Boosted Savings

Cream Finance also features Boosted Savings, a service that offers higher annual percentage yields (APY) to those who stake $BNB. According to Cream Finance, the “higher APY consists of lending interest and shared validator rewards. ”

This is possible because Cream Finance acts as a validator on Binance Smart Chain and earns returns.

Liquidity Mining

Cream Finance is one of many DeFi protocols that provide liquidity mining functionality. This DeFi lending platform allows users to deposit idle tokens for a set period in order to earn returns. The yield rate is prone to fluctuation.

What is the origin story of Cream Finance?

Jeffrey Huang and Leo Cheng, both Taiwanese citizens, founded Cream Finance. In August 2020, they launched the DeFi protocol on the Ethereum blockchain. They subsequently deployed another version on Binance Smart Chain in September 2020.

Since its inception, Cream Finance has expanded to multiple blockchains, including Fantom and Polygon.

What is the native token of Cream Finance?

The native token of Cream Finance is CREAM, an ERC20 standard token that acts as the key to the protocol. Holders of the token can participate in governance activities by submitting proposals for potential changes and participating in voting sessions. They can also benefit financially from holding the token.

iceCREAM is another token on Cream Finance that “turns CREAM into a productive asset. It will have the same three main use cases as CRV-voting, staking, and boosting.

Unlike the CREAM token, this token can’t be transferred to others once received. Individuals can participate in governance activities by holding the iceCREAM token. One iceCREAM token gives the user one vote.

Users must lock their CREAM token for one week to four years in order to obtain the iceCREAM token. According to Cream Finance’s documentation, locking 1000 CREAM tokens for one week earns 4.79 iceCREAM tokens, and locking the tokens for four years earns 1000 iceCREAM tokens.

In Conclusion,

DeFi platforms are usually free from centralized interference.
They rely on smart contracts to operate. Cream Finance, or CREAM Finance, is an acronym for “Crypto Rules Everything Around Me.”
This decentralized lending protocol offers financial services to a wide array of clients, including individuals and organizations.
Cream Finance offers lending facilities to borrowers. It also allows holders of idle funds to deposit their assets for a period and earn returns.
Cream Finance has two tokens, CREAM tokens and iceCREAM tokens.
DeFi protocols have associated risks, and it is advisable to always conduct proper due diligence before using them.

Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.

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