Here we stand, dodging the opening shots of the global unwinding of the JPYUSD carry trade while all our friends get liquidated, to present the next evolution of on-chain credit mechanisms.

TL;DR — Wildcat V2 has been deployed on the Sepolia testnet. We’ll be releasing it on mainnet (with a new UI) later this year after audits.

Key Protocol Features Introduced In Wildcat V2:

• Self-onboarding of lenders,
• Fixed duration markets,
• Fully uncollateralised markets,
• Optional minimum deposit amounts,
• Markets without tradable debt tokens.

Key Wildcat V2 UI/UX Upgrades:

• In-app/on-chain signable Master Loan Agreements,
• Slack/Telegram notification bots,
• Borrower profile pages,
• Optional borrower financial status dashboards,
• General visual overhaul.

We’ve done a lot since we launched Wildcat V1 with our manifesto, so while we’ve led with the take-away news (V2 soon!), there’s a lot left to say.

Re-Introducing Wildcat

The Wildcat Protocol is an Ethereum mainnet protocol enabling hyper-flexible on-chain credit agreements. That sounds incredibly boring, but boring things have a habit of being the most important ones that an ecosystem can support: the amount of credit flowing around is a critical indicator of both the leverage in a system and its’ overall health.

In what we now nostalgically refer to as the last cycle, tens of billions of dollars flowed into credit via Genesis, Voyager, Celsius, BlockFi et al, with zero public insight into where funds were going (or on what terms). That ended spectacularly badly for nearly everyone involved.

It was this observation, combined with what we perceived as issues with existing on-chain solutions — i.e. constrained choices of borrowable assets, the usage of dynamic interest rates, overcollateralisation requirements, the imposition of third parties into lending agreements, and loan issuance from a single pool — that led us to build and release Wildcat V1 in 2023.

Wildcat focuses on borrowers rather than directly catering to lenders, and we don’t underwrite any credit lines: we are a settlement layer for credit agreements. In our model, authorised borrowers deploy markets that are parameterised the way that they feel best able to service their debt:

• The asset — and maximum amount — they want to borrow,
• Their reserve ratio (nothing up front from the borrower: rather a Wildcat market is an underutilised credit line up to the reserve ratio: you can borrow up to a portion of the credit extended, but pay interest on the whole amount),
• The fixed interest rate they’re willing to pay (adjustable given circumstance),
• How long they have to honour a withdrawal (all Wildcat V1 markets are open term: you can request funds back the block after you loan them),
• The penalty rate they’ll pay if they’re slow to do so, and more.

The market is subsequently operated solely by the borrower (Wildcat does not and cannot intervene in any way), under the thesis that risk-seeking capital will fill the ask should the terms presented be appealing enough.

In exchange for depositing to a Wildcat market, lenders receive a market token that rebases to reflect the APR: for example, the 1,000,000 whcUSDC that you receive in exchange for a million USDC loaned to West Ham Capital at 10% will slowly increase to 1,100,000 whcUSDC over the year, representing a 1:1 claim against the underlying USDC.

We aim to treat market participants as adults, giving them the freedom of choice — if you want to lend your funds to an NFT fractionalisation protocol looking for operational runway, you should have a mechanism to do that. If you want to lend to a market maker that everyone thinks is ruining their favourite chart, that should be permitted. If you want to try to borrow USDC at 3%, good luck to you!

Wildcat V1: Reception

Wildcat V1 has been live for eight months now, and has originated US$38 million in loans in USDC, USDT, WETH and WBTC, all to Wintermute (who funded us at the pre-seed stage).

It currently holds US$31.37 million in AUM across thirteen distinct lenders, each of which has gone through a KYC/KYB process before being authorised on-chain to engage. We don’t take part in that lender onboarding, which likely took place via Telegram/email.

This requirement to go off-chain to get authorised introduced a major friction point for V1, and moved the pressure which Wildcat lifts from middle office squarely onto compliance.

With this in mind, after V1 launched we reached out to market makers, funds, DeFi protocols, on-chain banks and more for their thoughts, and in doing so received pretty much universal feedback:

• “Let us specify the type of lenders we want and allow them to onboard themselves, rather than us having to vet each one individually.”,
• “Let us deploy fixed duration markets where we don’t have to worry about withdrawal requests for {N} days.”, and
• “Let us deploy markets that are fully uncollateralised, else we have to factor in the reserve ratio when deciding our APR”.

Lenders seeking to deploy capital also frequently tapped us on the shoulder, thinking that they had to go through us to be permitted to interact with the protocol. They don’t, but our V1 UI was missing a contact page to reach out to borrowers. If a lender was willing to lend to someone but didn’t know how to reach out to them (given that the borrower needs to authorise them), people either came to us instead or were dissuaded.

After hearing the above enough times, we decided on a redesign.

We hope you find what we came back with useful.

Unveiling Wildcat V2

In much the same way as Uniswap stepped up several gears by shifting from ETH-ERC20 pools to ERC20-ERC20 between their V1 and V2, Wildcat V2 makes one simple addition which acts as a massive unlock: introducing pre-transaction hooks.

The long and short of this is that access to Wildcat markets can now be optionally gated by additional requirements, which can range from “don’t process withdrawal requests until 180 days have passed”, to “the minimum deposit amount is 100,000 USDC”, all the way to “only allow deposits or withdrawals from addresses that have provided proof that they aren’t controlled by an American”.

From the perspective of borrowers, this change alone allows their Wildcat markets to adhere precisely to their own profile. Perhaps they only want credit originating from within the Schengen zone and need that credit to be extended to them for a year because their borrowing is in service of duration arbitrage. We can support that now. For borrowers that don’t want the tokens corresponding to their debt to be transferable beyond initial depositors to keep their compliance teams happy, that’s possible too.

From the perspective of lenders, hooks allow them to decide which markets are appealing to them and obtain a credential to access them without ever having to reach out directly to the borrower. That credential may come through Coinbase Verifications, Binance Account Bound Tokens, Keyring Network (who we‘ve teamed up with as a provider of zero-knowledge powered credentials) or indeed anywhere else that either exists right now or will in the future.

Going forward, we’ll also be encouraging — but not forcing — borrowers to make use of efforts such as those provided by Accountable to display real-time, privacy-preserving statistics of the assets they hold. The future of credit involves ZK, and we’re leaning into it for the benefit of both sides.

We’ve also refactored other components such as easier ejection upon sanctions flagging (unlikely as this is to happen), introduced asset rescue functions in case contracts are interacted with incorrectly, and generally smoothed out a lot of the functionality, which will reflect in the new UI. Like the V1 markets before them, V2 markets will be protected on-chain by SphereX, which provides a measure of exploit protection by rejecting transactions that don’t follow a whitelisted path in code.

All things considered, we believe that Wildcat V2 plus our revamped UI will make it much easier both for borrowers to create the markets they need, and for lenders to engage with them.

We will be deprecating Wildcat V1 by deregistering the market controller for it after the V2 launch. This means that no further V1 markets can be created, but existing ones will remain unaffected: the power to terminate them rests with the borrower alone.

There are some things which aren’t included in V2, such as oracle feeds enabling cross-asset credit (i.e. borrow USDC, repay in WETH). We’re thinking through the implementation here, but view it as a niche case more attuned to using Wildcat to bootstrap funding for DeFi protocols rather than the borrower set of market makers and funds that we’re focusing on.

Our medium-term plans post-launch involve:

• Substantially expanding the protocol documentation so as to minimise the necessity of day-to-day involvement of Wildcat Labs,
• Adding auxiliary features to the front-end such as monthly statements,
• Introducing a suite of Dune dashboards for visibility/transparency (which is why we built this in the first place),
• Fleshing out a suite of Keyring policies for various compliance tolerances,
• Introducing protocol integrations such as optional Nexus Mutual coverage and secondary markets for market tokens,
• Supporting the display of existing data surrounding a borrowers’ financials (e.g. Credora reports), and
• Thinking through and implementing the various flywheel and incentive systems that Wildcat should support as a network, with mind to Wildcat Labs becoming a service provider rather than the protocol operator.

We’re going to be busy for quite some time to come.

Wildcat In The Wild

You may well have bumped into us in person this year! This year, we’ve either spoken or panelled at ETHDenver, the Digital Asset Summit, ETHZurich, Token2049 Dubai, ETHDublin, Modular DeFi Day and EthCC, either on Wildcat itself or our thoughts about various components of the on-chain lending scene.

We’ll be continuing in this vein — for the rest of the year we’ll be present at ETHWarsaw, Permissionless and Devcon 7 at the very least. If you’d like to sit down in person with someone from Wildcat Labs to talk about how the protocol works, if you have any additional feature requests (or if you’d like to join us!), there are plenty of opportunities ahead!

If you’re reading this and would like to discuss onboarding to Wildcat as a borrower, fill out this form and we’ll be in touch with you very soon!

We’ll also be booting up a Discord server to welcome everyone into a single place where we can focus our announcements and share progress: there is a lively community in DeFi interested in credit mechanisms, and it’s time for us to start giving them more voice and power in how Wildcat develops: not least because many hands makes for lighter work, but also because the best ideas we get often come from places we wouldn’t expect.

When said Discord is ready, we’ll update both here and the X page for Wildcat Labs, where we’ve been mostly light-heartedly posting while we’ve been gathering feedback and building V2.

Wildcat’s Long-Term Goals

We built — and continue to build — Wildcat with a vision. Industries that touch crypto and make use of the funds of others should have as much of their inner workings as possible visible in the interests of transparency, and credit rails are no different.

A concurrent goal is the fact that crypto has been searching for years for a decent mechanism for bootstrapping reputation, and under a capitalist view there isn’t a much better one than extending or stewarding a credit line: the entire economy hinges around this!

In the round, we seek to provide a solution to an information problem:

• Lenders that wish to earn yield often aren’t aware of who is seeking capital: they’re indexing on DeFi yields provided by Aave or (if they’re DeFi-savvy and have the mandate) deploying in places like Blast, Pendle or Ethena. Eleven figures of capital — the amount being loaned out via CeDeFi last cycle — strains against existing DeFi rails: there’s a reason it went into CeDeFi in the first place.
• There are many quality entities that wish to borrow (the desire to borrow undercollateralised is nearly infinite), but don’t have a mechanism by which to broadcast their needs, often being forced into accepting bad terms in closed systems out of necessity. That doesn’t feel very DeFi, especially since the entire premise is (in our view) about determining risk-reward functions on both sides: perhaps a borrower is happy to pay twice the baseline Aave rate for a given asset just to get a hold of it. And perhaps lenders are willing to meet them there.

Wildcat is a vision for a minimalist, hands-off implementation of on-chain credit, and we’re excited to share V2 of that vision with you.

In the weeks to come, you’ll see a new iteration of the more technical Wildcat whitepaper, much more activity from the Wildcat Labs X account, and some indications of the direction we’re heading in thereafter.

Thanks for reading.

Wildcat Protocol Website

Wildcat Labs X / Twitter

Wildcat V1 Documentation

Now it is our turn to discuss unsecured credit.

Credit is a funny thing. Most of the financial world revolves around it. America’s credit card debt hit a trillion dollars in Q2 this year.

Of course, by definition, credit is underpinned by a notion of trust: trust in your counterparty, trust in the intrinsic value of what you’re borrowing or lending to remain stable for the duration, trust in the legal system to protect lenders when things go wrong.

And yet, when it comes to decentralised finance, trust is considered a weakness. As a subfield within cryptocurrency, we’ve managed to inculcate “don’t trust, verify” as a core way of looking at the world: even though it would appear that several major players in crypto are failing to (although, in fairness, this is a tale as old as time, not unique to us).

In response, Ethereans (and appreciators of every other smart-contract enabled chain out there) built out infrastructure that is overcollateralised as a default — we don’t need to trust anyone or verify anything if it’s impossible to juke your counterparty because you stand to lose more than you gain! The most popular lending markets work this way, and they work well.

Of course, a decentralised lending market that is undercollateralised — or heaven forbid, uncollateralised — loses that assurance, and becomes a de facto credit facility instead. Given that DeFi operates in a pseudonymous, adversarial environment, who would willingly use that?

The thing is, we believe that undercollateralised credit is a great application for DeFi. Lending instruments — as boring as they were next to all of the bubble-mania shitcoinery of the 1700s — made modern finance happen.

Overcollateralisation is desirable when you can’t know your counterparty, but comes with the bladed edge of constraining growth.

But, if you know who you’re dealing with? Then you’re off to the races. Look at the last bull market.

Of course, a counterpoint to that weak justification is that we’ve subsequently learned that that bull market was mostly spurred by a game of pass-the-parcel of loans with an empty box at the end. Most of these loans were off-chain, though: papered up by lawyers for their respective counterparties, then placed into a drawer and forgotten about until the tide rolled out and showed everyone up as swimming in the nude.

What if you could monitor the health and status of a similar arrangement on-chain, though? What if everyone could?

Several solutions for undercollateralised on-chain credit provision exist already, but in our opinion they’re too close to the action.

They certainly provision the infrastructure for credit in terms of smart contracts, and perform the service of connecting risk-seeking capital (lenders) and borrowers to each other, where each party might not otherwise know that the other exists. This is extraordinarily valuable.

With that said, these platforms often also engage third-parties that act as underwriters and credit risk analysts, retain powers such as freezing activity in a given credit pool or liquidating any up-front collateral in the event of default, and go so far as to dictate the interest rates and credit limit of borrowers who are deemed worthy.

In our opinion, this hall-monitor presence is constraining the freedom to contract for parties that are perfectly capable of acting responsibly, and forcing a third-party into an agreement that should otherwise be between a borrower and lender alone.

We believe this is dissuading agreements from forming on-chain that otherwise would. The court system is quite happy to get involved when it comes to loans involving digital assets. That’s the same level of recourse that most parties to a loan agreement receive off-chain.

And so, we arrive at Wildcat.

The extent to which we — in our role of operating Wildcat — are involved in any given credit arrangement between a borrower and their lenders is at the very first stage: deciding which entities are allowed to act as borrowers.

The key question from our perspective is a qualitative one to start, but fundamentally boils down to: is the damage that a borrower would do to themselves by not respecting their lenders while using Wildcat greater than the amount that they could reasonably take out on credit and default on? If so, we’re likely to permit them. We’re not touching Americans though, consider yourselves protected.

Beyond this, we figure that the goings-on between borrowers and lenders in their relationship are none of our business at all. It’s not our place to tell a borrower that they can’t request a credit line for PEPE, or what their response time should be in terms of honouring a request for funds to be returned before they should start paying a penalty.

The demand for credit itself is inelastic, but the circumstances surrounding it very much are: the motivations and requirements behind each credit line are different, and we’d rather leave participants alone while they decide what’s best for them. To that end, we’ve automated as many components as we can, removing the role that third-party oversight plays in the actual day-to-day processes of maintaining a credit line.

With that said, the freedom afforded to borrowers via arbitrary parameter control needs some form of reining in, so in the process of automating everything we’ve provided some guardrails to lenders, who assume the bulk of the risk in a trusted credit relationship:

• There are bounds on the freedom a borrower has: they can’t create a credit facility that is fully uncollateralised, there are minimum penalty rates for borrowers who are tardy in honouring withdrawal requests, and a borrower can’t deploy a market where that penalty only kicks in after a ludicrous amount of time such as a year.
• Withdrawals are handled in such a way that multiple lenders within a single withdrawal cycle are treated identically, and lenders who request a withdrawal in earlier cycles must be attended to before those in later ones. There’s no queue-jumping for preferred lenders.
• A borrower is free to reduce the interest rate of their market at any time, but depending on the degree of the reduction, elevated amounts of reserves may be required to be locked into the market for lenders to withdraw against for a short period of time.
• If the unlikely event that a lender in the same market as you is sanctioned by, e.g. OFAC, markets utilise an efficient mechanism for quickly excising their debt obligations and assets from the wider market, allowing you to continue to use it without fear of being tainted by strict liability.

As we alluded to above, cases involving default on digital assets are already readily handled by the legal system. One of the ‘off-chain’ features of Wildcat is the presence of a master loan agreement that a borrower must pre-sign if utilising Wildcat through the user interface. Lenders can countersign this when first interacting with a market if they wish: it defines conditions of default on the borrowers part, as well as setting out the jurisdiction and process to be followed in the event of general conflict.

Beyond this, our approach is that of Uatu the Watcher: we’re interested, and we’re watching, but we will not and cannot interfere.

We built Wildcat because we trust market participants to engage in agreements that work for them, believe that undercollateralised lending within digital assets needs more freedom than currently exists, and think that there’s only upside for bringing their terms into the light for all to see.

We’re looking forward to seeing its uptake, and the degree to which flexible credit agreements that otherwise wouldn’t exist on-chain start to appear.

If you have any feedback, we’d love to hear from you.