Crypto money market protocol Cream Finance announced the launch of Asset Cap, a new protocol safety feature that protects investors.
According to a Medium blog post released on January 11, the team has worked hard on creating an important mechanism that reduces the risk of lending & borrowing. Furthermore, the team explained why DeFi users need asset caps and how they work.
Cream Finance notes that it offers the largest selection of digital assets in the entire DeFi market. Moreover, the protocol prides itself on having the ability to efficiently process new assets through the CREAM DAO.
As new cryptocurrencies join Cream, users face more and more risks. Until now, developers have created Cream Finance in such a way that it can protect itself against two leading risks: collateral factor and reserve factor.
While the collateral factor limits the dollar value of assets that one can borrow, the reserve factor controls the amount of interest paid by a borrower for each asset.
Cream may have done a good job of protecting the community with these risk tools. However, the blog post notes that there are still certain fundamental problems.
The issue that developers have worked on solving is the risk of having the value of a single asset supplied too much compared to other collateral assets.
Therefore, Cream Finance introduces the Asset Cap feature to mitigate the risk. The asset cap limits the number of units that any collateral tap can supply to the entire protocol. For example, if Ethereum has an asset cap of $1 million then all of the lenders could not supply more than $1 million in ETH.
How Cream Finance Asset Cap works in practice
Solving issues such as borrower crowding, worthless collateral, and infinite minting, Cream Finance notes that it significantly reduces risks for its lending & borrowing solutions.
The team claims that it is the first group of developers to feature a DeFi money market protocol with an Asset cap that mitigates protocol risk. Specifically, the team writes:
“Our Asset Cap increases the overall health of the CREAM system, empowers all CREAM users to borrow quality collateral, and reduces attack vectors including the risk of financial contagion from the collapse of or infinite mint of any one asset supplied.”
But while the team introduces its newest features, investors pull out a significant amount of liquidity from CREAM. Data from DeFi Pulse shows that the protocol lost up to 15% in collateralized value in only 48 hours. Cream was close to reaching a new TVL all-time high but it ultimately failed. Following a rejection, the total value locked dropped from $315 million to $268 million.
The price of the CREAM token became extremely volatile as well, moving back and forth between $61 and $90. In terms of the token’s price, the protocol failed to reach an all-time high as well.
However, strong buying pressure indicates that the digital asset is not as weak as it seems. Will the new Asset Cap feature result in DeFi users moving to Cream Finance once and for all?