DeFi: what is Fulcrum and the differences with other projects

Fulcrum is a DeFi platform that allows lending and margin trading. In particular, as far as lending is concerned, it is similar to other platforms, such as Compound, although there are some differences. 

What is Fulcrum?

Fulcrum is just the interface that allows users to use the actual protocol, called bZx, which enables trustless and permissionless transactions, with no fees, setting aside 10% of the accrued interest for the maintenance of an insurance fund. 

Some features of Fulcrum/bZx are comparable to those of other similar platforms, but others are different, if not specific to this protocol. 

For example, just as Compound uses cTokens, Fulcrum/bZx uses iTokens. 

These iTokens, like Compound’s cTokens, allow lending and borrowing with certain cryptocurrencies, in a way not particularly different from other platforms. 

The cryptocurrencies and tokens supported by Fulcrum are Ether (ETH), DAI and SAI, Wrapped Bitcoin (WBTC), USDT, USDC, SUSD, Chainlink (LINK), 0x (ZRX), Augur (REP) and Kyber Network (KNC). For each of these tokens, there is a corresponding iToken that represents it within the bZx ecosystem, and which interacts with the smart contracts of this platform. 

A first difference with other platforms is the choice of the integrated tokens since, for example, the Compound cTokens do not integrate USDT, SUSD or LINK, whereas they do integrate Basic Attention Token (BAT). 

Some tokens are supported by all, or almost all, decentralized lending platforms, such as ETH or DAI, but others are only integrated by some. 

In addition, the protocol behind Fulcrum, bZx, has a native governance token of its own, called BZRX, which is currently locked and used only to pay fees. 

The operation of these iTokens is very similar to that of other comparable platforms since in order to grant a loan it is sufficient to swap one of the supported tokens with the related iTokens, in order to send the tokens to the platform in exchange for the iTokens that represent them and allow obtaining an interest in return.

How does lending on Fulcrum work 

Even with regard to obtaining a loan, the operation is similar to that of other decentralized lending platforms, but with one peculiarity: the so-called flash loans. 

To obtain a normal loan via Fulcrum, through the torque.loans service, the user sends the tokens as collateral to the service and obtains in exchange a certain amount of tokens indefinitely and at a fixed interest rate. 

In other words, since the user has locked sufficient collateral on the platform, the tokens obtained as a loan can be kept for as long as desired, until the user returns the loan by recovering the collateral, or until the value of the collateral is no longer sufficient to cover the entire amount of the loan plus the accumulated interest. 

However, bZx also allows borrowing without collateral, using flash loans. 

Having to provide collateral worth much more than the value of the borrowed tokens means that it is not so easy to obtain these loans, although this limitation has been exceeded by creating loans that are disbursed and paid off in a single transaction. 

In other words, the flash loans are switched on and paid off virtually simultaneously, thanks to a single structured transaction on the platform. 

This makes it possible to grant loans without collateral, because when the transaction is executed, the credit position in it is also closed, which means that there is no risk or no uncovered exposure. 

Flash loans are mainly used for trading, and in particular for so-called leveraged operations, and Fulcrum is, in fact, a platform that is not limited to lending, such as Compound, but also allows margin trading. 

The same is true of other DeFi platforms, such as dYdX which offers margin trading but without flash loans, or Aave which offers flash loans but not margin trading. 

However, the combination of flash loans and margin trading has caused some hackers to target the bZx protocol, and exploit some of its vulnerabilities to steal a lot of funds. 

This happened on two occasions, during the first of which the attacker exploited a bug in the bZx protocol that allowed him, through a complex operation that also involved other DeFi platforms, to embezzle thousands of ETH, while in the second case the attacker exploited a vulnerability of an oracle to achieve something extremely similar. 

DeFi: differences in lending 

Other differences concern some of the specifics with which the loans are disbursed. 

For example, even other platforms set aside part of the accrued interest for the maintenance of insurance funds, or as reserves, but with percentages differing from 10%. 

Or they may change the amount of collateral, as a percentage, that must be locked into the platform in order to obtain the loans. 

These amounts vary not only from platform to platform but also from asset to asset, hence it is not possible to provide a general overview, rather it is necessary to analyze and compare the data asset by asset. 

The fees charged on transactions also differ from other platforms, in particular, because bZx does not charge them, whereas other platforms do. 

In addition, not all decentralized lending platforms allow loans to be obtained without maturity. 

In some cases, a maximum maturity time is set, within which the loan must be repaid or the credit position will be closed with the automatic sale of collateral. 

On bZx, however, there is no due date, and loans can be kept active as long as the value of the collateral remains higher than the value of the borrowed assets plus interest. 

In the case of bZx, when this happens, the debtor’s collateral is liquidated on the decentralized KyberSwap exchange but is only partially liquidated until the debt position is completely extinguished. 

The interest rates remain fixed for borrowers but vary for those who want to lend assets, depending on the supply/demand ratio in the market. 

Moreover, as far as Fulcrum is concerned, interest rates are calculated every second, unlike other platforms where they are calculated with each new Ethereum block. 

Like other similar DeFi platforms, Fulcrum/bZx is based on the Ethereum blockchain. 

So, the differences between Fulcrum and other platforms are not many, but they are significant, though there are many more points in common. 

However, after the recent attacks, the volumes of locked assets on bZx decreased a lot, and after reaching a peak of more than $19 million on February 18th, 2020, they went back below 8 million on February 26th, more or less the same level they were at the beginning of February, before the peak that had caused them to increase by more than twice in just 12 days.