Silo Finance launched its onchain credit markets on Injective through its v3, a lending architecture that introduces a design of risk-isolated markets and a solvency guarantee mechanism called Collateral Debt Swap (CDS).
Unlike traditional lending protocols that pool all assets into a single pool, Silo isolates each market into two separate vaults: one for collateral and one for the borrowed asset. This design prevents the collapse of one asset from contaminating positions in other markets, a problem that affected protocols such as Aave and Morpho during the depegging events of 2022 and 2023.
The CDS is the central mechanism that sets Silo v3 apart from the rest of the DeFi ecosystem. When liquidity on DEXs disappears and standard liquidations cannot close positions efficiently, the protocol cancels the borrower’s debt and distributes the collateral directly to lenders on a proportional basis.
Liquidation fees also flow to lenders, becoming an additional source of yield during periods of high volatility. The yINJ/INJ market is already live, with more pairs to be announced shortly. The parameters of each market are locked after listing and cannot be modified, eliminating the risk of discretionary changes being implemented to the protocol’s conditions. Builders on Injective can deploy markets for any asset pair through Silo’s permissionless factory, compatible with the ERC-4626 standard.
Source: https://injective.com/blog/silo-finance
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