Hubble vs. Other Borrowing Platforms

Hubble has been designed so that users can pursue the most predictable borrowing experience possible. This means that if you repay your USDH debt, you can always retrieve your collateral, and it also means that you can always withdraw your USDH from the USDH Vault at any time.

Key Takeaways

  • Hubble doesn't require lenders for borrowing.
  • Every borrowing position can be safely unwound.
  • Users always have access to their funds.  

Hubble Protocol lets users borrow a stablecoin, USDH, to leverage their positions and participate in decentralized finance (DeFi). However, the way Hubble facilitates borrowing relies on the full issuance power of its own token, USDH, without depending on the availability of lenders like other pool-to-pool lending protocols.

In short, users don't have to worry about whales and "whales doing whale things" when they borrow from Hubble.

Hubble has been designed so that users can pursue the most predictable borrowing experience possible. This means that if you repay your USDH debt, you can always retrieve your collateral, and it also means that you can always withdraw your USDH from the USDH Vault at any time.

What's important to note about Hubble is that when users deposit assets into the protocol's smart contracts, those assets cannot be made irretrievable by the actions of others. For most centralized and decentralized lending platforms, though, this isn't the case.

CeFi Lending Protocols Can Choose to Block User Withdrawals (Not Your Keys, Not Your Crypto)

It's been a wild news cycle for many big names in crypto lending.

Celsius halted withdrawals in early June with little word on when users would be able to retrieve their crypto. Other massive CeFi projects like Babel Finance and Vauld have also recently resorted to similar pauses on withdrawals.

These CeFi protocols custody their users' assets and lend them out to generate yield. If something goes wrong, and if the lending protocol becomes insolvent, users' funds wind up entangled in the process of meeting the protocol's obligations.

Coinbase is a publicly-traded company that publicly stated what could happen to users' funds if it needed to declare bankruptcy.

Explanation of Coinbase using users' assets to settle bankruptcy proceedings.

The mantra "Not your keys, not your crypto" has resurfaced as of late while funds and CeFi protocols are falling like dominoes. Many users are beginning to regain custody of their assets as contagion affects one centralized protocol after another–as more protocols begin freezing their users' assets.

As funds are increasingly unable to pay their lenders and whales regain custody of their assets from these lenders, the liquidity problems facing centralized protocols are exacerbated.

This is most likely crypto's first large-scale credit crisis, and it could be your liquidity on the line when the shit hits the fan at your CeFi lender.

Your Assets Remain Yours and Yours to Withdraw on Hubble

As for Hubble, the only time the protocol would freeze withdrawals is to protect users' funds during the possibility of an exploit. Users retain custody of their assets at all times when they deposit collateral or provide stability to the USDH Vault.

Once the conditions repaying a Hubble loan are met, users can unwind their positions and retrieve their assets. Otherwise, if a user cannot repay their loan, their forfeited assets are distributed to users that guarantee debts by providing USDH in the USDH Vault.

If you deposit USDH to guarantee loans are repaid, you earn yield from Stability Fees and HBB rewards, and you also gain tokens from liquidations at around a 10% discount. The only time you can't withdraw the USDH you deposited is when it has already been used to cover bad debt, and you've already received tokens of greater value than your contribution.

Whenever you want to retrieve your USDH balance from the USDH Vault, you can.

In addition, if a whale decides to withdraw the entirety of their holdings from Hubble, other users' positions on the protocol remain unaffected. Of course, there would be less USDH in circulation, but it won't affect the users who maintain their positions on Hubble.

Whales Can Affect Users on DeFi Lending Protocols Too

Borrowing USDH requires opening a collateralized debt position (CDP), which can be briefly described as using a DeFi smart contract to borrow from yourself. You deposit collateral, you borrow a reasonable amount of USDH against the value of that collateral, and a computer code facilitates the entire process that leaves you in charge of maintaining your account.

On Hubble, your position exists in a silo. Your position is solely your position, and it doesn't depend on a counterparty, and it doesn't bear the brunt of another user's actions.

This doesn't mean that every DeFi borrowing and lending protocol works the same way, even if they rely on smart contracts.

Decentralized money markets can only create borrowing opportunities if lenders provide liquidity for their borrowers. For these protocols, a metric called a utilization rate measures how much lend-side liquidity is currently being lent out, and if this rate reaches 100%, then lenders cannot withdraw their funds.

Graphic depicting the utilization rates of USDC on Solend during its whale crisis.

Many of Solend's lenders could not make withdrawals for several days as a whale racked up hundreds of thousands of dollars worth of USDC debt on the brink of a massive SOL liquidation.

In contrast to CeFi lending protocols freezing user withdrawals by executive decision, this time, it was a smart contract doing exactly what it was programmed to do.

An excellent summary of the Solend whale crisis.

Another thing lending protocol smart contracts are designed to do is adjust rates as supply and demand fluctuate, which means users who aren't constantly paying attention to their positions on their money market of choice can end up paying more than they planned.

Imagine a whale, who wasn't paying attention, owing hundreds of thousands of dollars in interest on their loan a day due to an algorithm. You don't have to imagine it, because it just happened, but it would never happen on Hubble.

Hubble Protects Users Seeking Leverage by Design

We've seen how CeFi and DeFi lending protocols can leave users unable to withdraw funds for reasons outside their control. It's time to reiterate that Hubble has been designed to ensure this cannot happen.

At one point in Hubble's earliest days, a condition called Recovery Mode would ensure the System LTV was always below 66.6%. The way it worked (never triggered, though) would have adjusted users' positions to rebalance the books, so there was always at least 150% worth of collateral backing all USDH loans.

We got rid of Recovery Mode, because it meant that a user's position could be affected by other users' borrowing. It was an unfair system that we adapted from Liquity (LUSD), and since we're a dynamic protocol working to create the most friendly and predictable user experience possible, Recovery Mode was nixed easily.

That's our mission: make borrowing USDH as user-friendly, sustainable, and as safe as possible.

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