Decentralized finance project Everything Protocol has published a whitepaper proposing a unified architecture that integrates trading, lending, leverage, and limit orders around a single liquidity reserve. According to the project, the model is designed to combat liquidity fragmentation across decentralized finance services by allowing the same capital pool to serve multiple functions.
Unified Capital and Shared Functions
Under the proposed system, liquidity providers can earn trading fees while simultaneously supporting the protocol's credit market. Funds placed in limit orders can also be utilized for lending until those orders are executed, providing depositors with an additional potential source of yield.
The whitepaper details the mathematical and accounting rules intended to maintain system solvency during periods of market stress. Instead of relying on an external price oracle for credit decisions, the protocol employs an internal price band based on the pool's trading state and time, which adjusts according to predefined rules.
Borrowing and liquidation processes are directly tied to the liquidity available within the same market, basing lending capacity on capital that absorbs liquidations. Furthermore, limit orders and loans utilize the same tick-based structure, and loans sharing the same liquidation price are grouped together for more efficient processing.
Solvency, Withdrawals, and Protocol Risks
The system outlines a claim hierarchy for stressed market conditions, separating user escrow from the pricing reserve and assigning certain losses initially to the junior liquidity provider tranche. The design aims to settle withdrawals in actual tokens rather than protocol IOUs, though voluntary exits involving lent capital may experience temporary limits if sufficient liquidity is unavailable.
The whitepaper also highlights potential risks associated with the model. These include delayed withdrawals for specific lent funds, possible losses for junior liquidity providers, governance and upgrade risks, and delays stemming from the internal pricing mechanism.
