Everything Protocol Proposes Single Liquidity Reserve for DeFi Trading and Lending

• Everything Protocol’s new whitepaper proposes using one liquidity reserve for swaps, lending, leverage and limit orders.
• The unified model aims to reduce DeFi liquidity fragmentation by allowing the same capital to serve multiple financial functions.

Decentralized finance protocol Everything Protocol has published a new whitepaper outlining a DeFi architecture that combines trading, lending, leverage and limit orders around a single liquidity reserve.

The project says the design aims to address liquidity fragmentation, where different DeFi services often rely on separate pools of capital. Instead, Everything Protocol proposes using the same reserve to support multiple financial functions, allowing liquidity to move between trading, lending and order activity.

Under the model, liquidity providers can earn trading fees while their capital also supports the protocol’s credit market. Capital placed in limit orders can additionally be used for lending until the orders are executed, giving deposited funds another potential source of yield.

Borrowing and Liquidations Rely on Shared Liquidity 

The whitepaper sets out the mathematical and accounting rules behind the system, including measures intended to maintain solvency during periods of market stress. The protocol uses an internal price band rather than relying on an external price oracle for credit decisions. The band is based on the pool’s trading state and time and changes according to predefined rules.

Borrowing and liquidation are also tied to the liquidity available within the same market. This means the system bases lending capacity on the capital that would ultimately absorb liquidations rather than assuming collateral can be sold through another market.

Limit orders and loans share the same tick-based structure, while lending can be enabled for capital waiting in resting orders. The protocol also groups loans at the same liquidation price to process liquidations more efficiently.

The whitepaper outlines a claim hierarchy for stressed conditions, with user escrow separated from the pricing reserve and certain losses first assigned to the junior liquidity provider tranche. The protocol is designed to settle withdrawals in actual tokens rather than protocol IOUs, although voluntary exits involving lent capital may be temporarily limited when sufficient liquidity is unavailable.

Everything Protocol acknowledges that the model still carries risks, including delayed withdrawals for some lent funds, potential losses for junior liquidity providers, governance and upgrade risks, and delays caused by its internal pricing mechanism.

The whitepaper presents the unified reserve as an alternative to using separate liquidity pools across different DeFi applications.