Kylix Finance - The Lending Parachain

Treasury Proposal: Kylix Finance x Polkadot

Proponent: Kylix Finance (15KLPJkuuVrjcxEXX2cYP1cYdggtWFg4zmYVAvdvo3jeTTo9)

Timeline: 6 months

Requested USDT: $544.800 as Token Swap

Equivalent DOT: 87,074.25

DOT EMA30 Price: $6.256729 (Subscan)

Short description: Kylix Finance is an advanced DeFi lending platform with a shared infrastructure for on-chain collateral liquidation.

Project Category/Type: Software development

Link to the Full proposal here

1. Context of the proposal

Polkadot leads the way when it comes to Blockchain Technology, demonstrating an innovative approach to decentralized infrastructure. However, despite this technological leadership, the DeFi landscape within Polkadot remains underdeveloped and less attractive compared to other ecosystems.

Current parachain implementations lack a fully comprehensive Lending solution. Key elements such as strong incentives for liquidity providers, a robust collateral liquidation auction system, and a composable asset lending product are notably missing in the Polkadot DeFi space.

The primary reason for the liquidity shortage on Polkadot is the limited availability of DeFi services and overall low capital efficiency.

2. Problem statements

Polkadot needs institutional and enterprise users to boost its DeFi ecosystem. DeFi is the fundamental use case for blockchains as it drives initial product-market fit and it enables the generation of capital gains from assets, thereby improving capital efficiency. Polkadot needs an advanced lending platform to act as a liquidity sink and boost the DeFi ecosystem, attracting TVL and activity from institutions and fintech-savvy individuals. For context, the top five lending platforms in Ethereum have a combined TVL of over $22 billion (source DefiLlama).

Polkadot needs composable lending across Parachains. We need to introduce a composable lending component enhanced by XCM, allowing the creation of lending pools for crypto-assets across parachains. Enabling Parachain crypto assets to generate returns, instead of sitting idle, significantly increases the whole ecosystem's capital efficiency. An advanced lending platform enables users to borrow against existing holdings, encouraging speculation on project tokens.

Polkadot needs the creation of primitives that can be reused. By liquidating collaterals through a user-bidding auction platform, we ensure a democratic and a capital efficient liquidation process rather than executing an off-chain market order on centralized exchanges (CEX).

3. Solution: Introducing Kylix Finance

We propose funding the creation of Kylix Finance, a new open-source parachain dedicated to providing a shared infrastructure for composable advanced lending and collateral liquidation platform within the Polkadot ecosystem. Kylix Finance integrates liquidity incentives and collateral management solutions, empowering users to deposit, lend, and borrow assets backed by crypto collateral, enabling the creation of Collateralized Debt Positions (CDPs). The Kylix platform features an integrated marketplace for bidding on collateral from defaulted loans, providing a unified, decentralized infrastructure for managing insolvency and debt settlement processes across multiple parachains.

Kylix Finance aims at enriching the Polkadot DeFi ecosystem and growing its capital efficiency creating reusable primitives in the Polkadot ecosystem.

This proposal asks to fund the following tasks:

Development and maintenance of the Kylix substrate node with all its functionalities.
Development of Kylix application frontend and deployment on Polkadot.

4. Proposal objective

With the support of BlockDeep Labs development team, we aim to build Kylix Finance for the Polkadot Ecosystem with the following features:

Vertical on Polkadot Ecosystem

Kylix Finance is focused on enriching the Polkadot DeFi ecosystem and growing its capital efficiency: it is designed as a lending platform for Parachain crypto assets and a shared infrastructure to manage insolvency and debt settlement processes via a collateral marketplace.

Advanced Dynamic borrower and lenders Interest rates.

Borrowing and lending interest rates, accrued over time, are set according to the supply utilization of each lending market. An underlying algorithmic mechanism adjusts these rates dynamically based on lending pool usage and idle liquidity. Please refer to the whitepaper, section 2.1.1.1

Built-in treasury and incentive mechanism.

Kylix has a built-in treasury system that automatically distributes the rewards to the lenders, who serve as liquidity providers. These rewards are distributed as additional interest, supplementing the interest already received from the borrowers.

Cross-Chain Capabilities with XCM.

By leveraging XCM, KYLIX Finance facilitates the transfer of assets from different chains to Kylix, enabling the use of the lending protocol with crypto assets from different blockchain networks.

Allows Yield opportunities on any Polkadot Asset.

Users can lend their assets and generate a return, can borrow assets while paying an interest fee, or can earn and bid on liquidated collateral with collateral-backed loans. Users are allowed to execute Looping strategies when a lending pool offers a supply interest rate greater than the borrowing rate.

DAO Community-Driven

KYLIX Finance is a platform designed to be fully managed by DAO proposals, as users can seamlessly create loan pools and exercise their voting power through governance to activate or deactivate them and modify pool parameters.

Loan Repayment and Liquidation

Users can repay or liquidate under-collateralized loans. At the same time, they are incentivized to bid on liquidated collaterals to obtain the assets at a discounted rate.

Built-in Liquidity providers Incentives.

The protocol includes mechanisms for distributing supply incentives from the treasury to liquidity providers, thereby increasing and enhancing liquidity and borrowing activity in the market. Kylix will distribute rewards to the interest rate paid to liquidity providers, thus enabling the possibility of looping strategies.

Interface for Collateral Management

Users can deposit assets as collateral to borrow, and they can dynamically lock and unlock tokens as collateral. Kylix protocol will calculate the maximum debt for each user based on users' collaterals and existing debts.

5. Founding Team & Budget

The founding team is made up of a group of graduates from Polkadot Blockchain Academy Hong Kong edition - Cohort 4 - both founders and engineering track. They will work together with BlockDeep Labs, a spin-out of the former solution engineering team at Parity, who have successfully implemented Substrate-based chains for the last 5+ years.

Gianluigi Davassi (Tech/Business) https://www.linkedin.com/in/gianluigidavassi/
William Chen (Business)
Chris Casini (Business) https://www.linkedin.com/in/christiancasini/
Kumar Gunjan (Tech) https://www.linkedin.com/in/gunjan321/
Adrian Cîrstea (Tech) https://www.linkedin.com/in/adrian-ioan-cîrstea-1b8830116/
Mugzar Akizhanov (Tech) https://www.linkedin.com/in/akizhan/

BlockDeep brings extensive expertise in Substrate development to support Kylix's entire development team. As the project evolves and expands, we plan to onboard additional individuals in various roles.

The total request for this Treasury proposal is 544,800 USDT as a token swap, meaning that we will send the Polkadot Treasury the equivalent in $KLX tokens for a total of 54,800,000 KYL, or the 5,48% of the whole total token supply. The request is for a 6 months development timeframe with a milestone to deploy the MVP on Polkadot. Below is a breakdown of the allocated budget and costs to support the Kylix team, including BlockDeep.


($240.000	USD)	3x full-time senior substrate developers
($180.000	USD)	3x full-time full stack developers
($78.000	USD)	Product Manager, QA, UX/Designer

Any funds not spent will be returned to the treasury. This funding is proposed to run the development for 6 months. Kylix Team will publish and maintain all development deliverables in an open-source repository based on Github accessible by anyone: https://github.com/Kylix-Finance/

6. Milestones & Timelines


Milestone	Weeks	Costs
M1	12	$260,000
M2	8	$169,000
M3	4	$72,000
Total	24

Current Milestones included in the proposal.


Milestone	Tasks	Deliverables	Costs	Notes
M1	Lending pools	Lending Pallet generation, definition of Lending Vaults on-chain structures, and correlated extrinsic logic.	$94,000	Lending Vaults are on-chain structures defined in the substrate node.
	Lending	Implementation of the lending business logic, extrinsics and RPC calls.	$93,000	Includes extrinsic and full product implementation
	Borrowing	Implementation of the borrowing business logic, extrinsics and RPC calls.	$73,000	Includes extrinsic and full product implementation
M2	Liquidations	Implementation of the liquidation business logic, extrinsics and RPC calls.	$96,000	Includes extrinsic and full product implementation
	Oracle Price Integration	Integration of Chain Link Price Oracles	$70,000
M3	Automated Treasury	Treasury Processes	$72,000	As described in the whitepaper, 2.6
	Deployment	Final deployment on Polkadot	N/A	Cost included in the overall process

Applying to OpenGov involves three key objectives:

Initiating the protocol's development.
Maintaining the necessary hardware to run the network with an infrastructure provider.
Supporting the internal team's development of the Kylix platform in collaboration with the BlockDeep development team.

This proposal outlines a six-month, time-based engagement aimed at achieving the milestone of delivering a working product on Polkadot.

Please have a look at these additional resources:

For full details and transparency about the prospective developments, detailed tokenomics, genesis allocation and funding FAQ and Q&A, please check the full proposal.

12/07/2024 EDIT

We are updating the proposal to highlight the Public Goods we are contributing to the Polkadot ecosystem. We believe this DeFi parachain will significantly enhance the ecosystem by providing:

100% Open-Source Parachain: All components, including Pallets, Substrate Node, and Frontend, will be released under the Apache License 2.0 and reusable by anyone.
Treasury Contribution: We will send back the equivalent in $KLX tokens to the Polkadot Treasury for a total of 54,480,000 KYL, or 5.44% of the total token supply as public good for the Polkadot Community.
Dual Transaction Fees: Both DOT and $KLX will be accepted as transaction fees.
Automated Treasury Allocation: Kylix features an automated internal treasury that constantly dedicates a percentage of the fee collected from borrowers and liquidations to public goods. This system, governed by the Kylix DAO Governance, will ONLY fund initiatives benefiting the Polkadot ecosystem. Please check slide 9 of the public VC Deck. Only a 15% is allocated to sustain the development team in the long term.

Additionally, we want to emphasize that all key components, such as:

Lending Pallets
Borrowing Pallets
Liquidation Pallets
Treasury Logic Pallets

and related logic, will be released as open-source, modular, and reusable. These can be leveraged by other parachains or related projects.