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Silo Finance: Tackling Contagion Risk in DeFi Lending
Jake Kennis
Key Takeaways
9 min read
  • Silo Finance is a DeFi lending market on Ethereum and Arbitrum. Since the start of September, TVL on the platform is up 94% as they enabled crvUSD to be the universal accepted collateral across all their markets.
  • SILO is up 102.5% YTD in 2023 and has a few key catalysts coming up including Arbitrum’s STIP proposal which will allocation 1m ARB to their markets on Arbitrum and Silo v2 in the coming months.

What is Silo Finance?

Silo Finance offers an innovative approach to money markets that focuses on isolating some of the risks associated with money markets, without sacrificing capital efficiency. Unlike traditional shared-pool lending systems like Aave and Compound, where the entire pool is exposed to the risk profiles of each asset, Silo Finance takes a different route. It employs "Silos" - specialized two-asset markets - to contain risks within each market. This allows for a safer lending environment without limiting market options.

This design aims to solve the trade-off issue seen in shared-pool models: having to choose between supporting a wide range of assets and minimizing the contagion risk between deposits, in case of...