Introduction

Relend Network solves stablecoin liquidity shortages for L2s.

Stablecoins are a fundamental pillar of the crypto ecosystem, providing a bridge between traditional finance and decentralized applications. Deploying Collateral Debt Position (CDP)-based stablecoins across multiple Ethereum Layer 2 (L2) networks presents unique challenges. At Relend Network, we are pioneering a novel approach to multi-L2 CDP-based stablecoins that balances security, composability, and resilience while enabling liquidity provisioning, increasing total value locked (TVL) in money markets.

The Relend Network Model

Relend Network generates a unique stablecoin for each Ethereum L2, ensuring that every instance is backed by lending market collateral and USDC. Users can mint stablecoins by supplying USDC on Ethereum mainnet and can redeem them at a 1:1 ratio with USDC on mainnet. This model provides a seamless way for users to interact with stable assets across different L2s while maintaining strong backing and liquidity.

Why CDP-Based Stablecoins Need a Multi-L2 Approach

It is important to note that the scalability issue primarily arises in collateralized debt position (CDP)-based stablecoins. In a CDP model, each stablecoin is minted against overcollateralized assets, making liquidity distribution across multiple L2s a complex problem. Deploying a CDP-based stablecoin instance on each L2 is highly appealing because it:

Facilitates liquidity for money markets by ensuring that each L2 has a native CDP-backed stablecoin, which increases usability.
Enhances total value locked (TVL) within lending protocols, boosting market efficiency and the overall adoption of decentralized finance.
Reduces reliance on cross-chain liquidity mechanisms, leading to a more robust and secure ecosystem.

Through localized stablecoin issuance with independent risk management, Relend Network’s approach ensures that each L2 benefits from a native liquidity solution while being part of a broader system.

Addressing the Core Challenge: L2 Failures and Interoperability

The two conventional approaches to multi-chain stablecoins come with significant trade-offs:

Unified Stablecoin Across All Chains: Deploying the same stablecoin on all chains provides a seamless experience, but if one L2 network collapses (“gets rekt”), it jeopardizes the entire stablecoin system. The contagion effect makes it a high-risk approach. Providing credit at scale to multiple L2s is inefficient as risk to the entire system increases proportionally.
Isolated Stablecoin Instances Per Chain: This method ensures that a failure in one L2 does not impact the others. However, it also means that the success of one instance does not enhance the stability of other L2 stablecoins, limiting liquidity and network effects.

Relend Network introduces a hybrid approach that captures the benefits of both models while mitigating their risks.

Example 1.1
Relend launches 3 rUSDC's for x, y and z ecosystem.
Relend deploys $50m rUSDC.x into the supply side of a lending market on xChain.
Relend deploys $50m rUSDC.y into the supply side of a lending market on yChain.
Relend deploys $50m rUSDC.z into the supply side of a lending market on zChain.
Each deployment has a Local Price Stability Module (LPSM) on Ethereum mainnet ensuring 1:1 redemptions.
Relend's Global Price Stability Module (GPSM) is able to top up Local PSM's as needed.
In a scenario where the rUSDC.x LPSM becomes empty - the rUSDC.y and rUSDC.z LPSMs remain unaffected.
Relend has the option to top up the rUSDC.x LPSM from the GPSM after conducting risk analysis to ensure the reason for the rUSDC.x LPSM becoming empty is not due to issues with xChain or the xChain lending market.

NextrUSDC

Last updated 1 month ago

The Relend Network Model

Why CDP-Based Stablecoins Need a Multi-L2 Approach

Facilitates liquidity for money markets by ensuring that each L2 has a native CDP-backed stablecoin, which increases usability.

Enhances total value locked (TVL) within lending protocols, boosting market efficiency and the overall adoption of decentralized finance.

Reduces reliance on cross-chain liquidity mechanisms, leading to a more robust and secure ecosystem.

Addressing the Core Challenge: L2 Failures and Interoperability

The two conventional approaches to multi-chain stablecoins come with significant trade-offs:

Unified Stablecoin Across All Chains: Deploying the same stablecoin on all chains provides a seamless experience, but if one L2 network collapses (“gets rekt”), it jeopardizes the entire stablecoin system. The contagion effect makes it a high-risk approach. Providing credit at scale to multiple L2s is inefficient as risk to the entire system increases proportionally.

Isolated Stablecoin Instances Per Chain: This method ensures that a failure in one L2 does not impact the others. However, it also means that the success of one instance does not enhance the stability of other L2 stablecoins, limiting liquidity and network effects.

Relend Network introduces a hybrid approach that captures the benefits of both models while mitigating their risks.

Example 1.1

Relend launches 3 rUSDC's for x, y and z ecosystem.

Relend deploys $50m rUSDC.x into the supply side of a lending market on xChain.

Relend deploys $50m rUSDC.y into the supply side of a lending market on yChain.

Relend deploys $50m rUSDC.z into the supply side of a lending market on zChain.

Each deployment has a Local Price Stability Module (LPSM) on Ethereum mainnet ensuring 1:1 redemptions.

Relend's Global Price Stability Module (GPSM) is able to top up Local PSM's as needed.

In a scenario where the rUSDC.x LPSM becomes empty - the rUSDC.y and rUSDC.z LPSMs remain unaffected.

Relend has the option to top up the rUSDC.x LPSM from the GPSM after conducting risk analysis to ensure the reason for the rUSDC.x LPSM becoming empty is not due to issues with xChain or the xChain lending market.