Q: What is Timeswap? Timeswap is the first fully decentralized AMM-based money market protocol with fixed maturity lending and borrowing of any ERC-20 tokens. Timeswap is a self-sufficient, non-custodial, permissionless money market protocol with market-driven interest rates & collateralization ratios. It is a highly capital efficient & secure protocol that works without external price feeds/oracles or liquidators. It can be thought of as a new DeFi primitive which can be used as a money lego to build various fixed maturity financial products on top of it like futures & options, fixed income products, etc.
Q: What is Timeswap's vision?
Timeswap’s vision is to build the most capital-efficient, secure & permissionless money market protocol on web 3.0, starting with Ethereum
Q: How do you avoid no oracles?
That’s the main beauty of Timeswap, just like Uniswap, it doesn’t need any external inputs into the system. The calculation of the collateral is based solely on the constant product formula (based on the Z pool). Anytime the minimum collateral required is lower than the market rate, then it becomes favorable for borrowers as they have to lock lower collateral. Borrowers will transact with the pool given the favorable price (and arbitrage it). But their transaction increases the minimum collateral required for the next borrower, due to the constant product formula. If the minimum collateral required is higher than the market rate, then it becomes favorable for lenders instead, since they get larger bond & insurance tokens, thus making their transaction much safer. As lenders transact with the pool, their transactions decrease the minimum collateral required. Eventually, the pool gravitates towards the market rates via these lending and borrowing transactions. So fundamentally it is similar to Uniswap’s open market arbitrage model to discover the right price for both the interest rate and the collateral required (which is why it has 3 variables since we are discovering 2 prices).
Since collateral values matter only near maturity and not any time in between, there is no need for a price oracle to value the collateral. The game-theoretic situation closer to maturity is that a borrower will decide whether to repay their debt or not based on the current market value of asset and collateral. The liquidation happens automatically based on the action of the borrower and thus the protocol does not require any external price oracle.
If someone deposits a large amount of collateral via borrowing, it simply gives an opportunity for the lenders to make a favorable transaction (arbitrage) at the cost of the borrower who deposited a large amount of collateral. It is fundamentally the same concept as in Uniswap. And the design of the collateral calculation is such that no matter how large the collateral is locked, the interest cost for borrowers is always positive.