Unused ressources
Tangent is born from the observation that liquidity pool positions on DEXs, often referred to as LP tokens, represent billions of dollars in untapped capital. Indeed, LP tokens are mostly considered as an endpoint in the current DeFi landscape. LP token owners provide liquidity to earn trading fees and liquidity mining rewards. Still, they can’t use their position further, even though it has value and could, for example, be used as collateral. Tangent aims to offer liquidity providers more capital efficiency by allowing them to use their LP tokens as collateral to mintUSG, a decentralized and over-collateralized USD-denominated stablecoin. By doing so, liquidity providers can use their LP tokens for various purposes, such as leveraged farming or trading, and access wider possibilities from their position.
Leveraging DeFi’s composability
Additionally, using LP tokens that earn liquidity mining rewards offers the possibility for a novel Collateralized Debt Position (CDP) model. Instead of paying an interest rate (materialized by an always-increasing debt), liquidity mining rewards produced by collaterals can be used to pay for borrowing rights. As a result, Tangent features interest-free markets, where borrowers forgo a portion of their collateral’s rewards in exchange for mintingUSG with a 0% interest rate.