Hermes Protocol

Hermes Protocol is a decentralized lending protocol where the end-user can use UniSwap V3 LP NFT as collateral.

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Inspiration

UniSwap v2 allowed users to leverage their LP tokens as collateral in such protocols as Aave or Compound. It had a positive effect on mitigating impermanent loss. UniSwap v3 ERC-20 LP token was substituted with ERC-721 tokens. Currently, no protocols allow end-users to leverage UniSwap v3 ERC-721 LP tokens as collateral to borrow funds. The absence of this feature leads to the capital efficiency decreasing. Since the value of the UniSwap v3 LP token can be accurately calculated, we avoid the NFT evaluation/scoring problem.

What it does

Our protocol will allow users to deposit their UniSwap v3 LP tokens and borrow funds to grow their capital. The liquidity will be provided by depositors, who will get a passive income (staking).

How we built it

Our protocol will be based on the Ethereum blockchain. Everything will be controlled by smart contracts deployed on the network. UniSwap v3 LP token represents a tremendous value itself. So we can precisely estimate its price using the data from the blockchain.

Challenges we ran into

  • It is challenging to find the optimal fees and thresholds to stabilize the protocol.
  • We did not have experience writing smart contracts before the hackathon, so given a short time, we have not finished implementing smart contracts.

What we learned

Before the hackathon, we did not know how the Ethereum blockchain works in detail. During the event, we went through many materials related to Ethereum and funds lending. We have learned a bunch of new things about the Ethereum blockchain. Primarily how EVM works, what accounts, transactions, and blocks are, and how gas is consumed and distributed during the mining. From Solidity documentation, we understood how smart contracts work and are implemented. Also, we liked the quote from there - "Once you accept these features as given, you do not have to worry about the underlying technology." Additionally, we analyzed how UniSwap v3, Aave, Pine Finance, and NFTX protocols work during the hacking.

What's next for Hermes Protocol

We expect to finish implementing the protocol's functionality. Once everything is tested, we plan to deploy the working version of Hermes Protocol. Afterward, we will investigate future opportunities to expand the list of accepted ERC-721 tokens as collateral. The part of the fees will be stored in the treasury. The DAO will rule the treasury, making the protocol fully independent.

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