Leverage protocol unlocks greater access to capital across the DeFi ecosystem

Gearbox Protocol enhances DeFi capital efficiency by enabling users to leverage assets across multiple protocols through credit accounts.

One of the most pressing challenges in the decentralized finance (DeFi) ecosystem is maximizing capital efficiency. Traditional DeFi loans require overcollateralization, forcing users to deposit more assets than they can borrow. In the traditional DeFi system, this overcollateralization is a necessary evil to protect against the wild swings of cryptocurrency values and situations where borrowers are unable to repay their loans.

However, it also means that users often find themselves with significant portions of their capital idle , underutilized and earning less than they could. This inefficient use of capital hampers individual growth and stalls the broader adoption and advancement of DeFi.

Making DeFi efficient

In the quest for more efficient capital utilization,  Gearbox Protocol , a generalized leverage protocol, offers a promising solution. Gearbox’s design allows participants to leverage their positions more effectively by borrowing a greater amount of assets than they initially deposit. This approach enhances asset utilization while providing users with more flexibility and opportunities within the DeFi ecosystem.

How Gearbox Protocol works. Source: Gearbox Protocol

Gearbox Protocol aims to establish itself as the leverage layer for the entire DeFi ecosystem. Recently, the project has expanded its reach by deploying to layer-2 solutions Arbitrum and Optimism and introducing incentives on these platforms. The strategic move is part of Gearbox’s broader objective to extend generalized leverage capabilities across all chains with significant DeFi activity.

Gearbox explained that the protocol aspires to serve two key roles in the future. First, it aims to become “the leverage layer for all of DeFi,” enabling new products and protocols to build on Gearbox while bypassing technical complexities and liquidity issues.

Second, it envisions becoming a kind of “leverage-enabled smart wallet,” allowing users to fund a credit account, obtain their desired leverage and use those funds across various DeFi protocols with the same ease that they currently experience with standard crypto wallets like MetaMask or Rabby Wallet.

“As DeFi continues to expand both in terms of sophistication and liquidity, the power of generalized, self-custodial leverage will become apparent.”

Prioritizing security and user control

Gearbox enables leverage through funds borrowed from its lending market, allowing users to enhance their positions across various DeFi protocols. These borrowed funds are secured within Gearbox’s smart contract wallets, known as credit accounts, which ensure the safety and control of the assets.

The credit accounts feature enables users to borrow more assets than they deposit and utilize them across diverse DeFi platforms. With over 2.5 years of operation, Gearbox has maintained a strong track record, never experiencing incidents of bad debt.

Security is a top priority for Gearbox, as evidenced by thorough audits conducted by reputable firms like ChainSecurity and ABDK. To date, Gearbox has never experienced hacks or incidents of bad debt — a situation where the collateral provided for a loan is insufficient to cover the borrowed amount after liquidation.

Moreover, Gearbox operates on a non-custodial basis , ensuring users maintain complete control over their funds throughout the process. The self-custodial approach underscores the protocol’s alignment with the core principles of decentralization and user autonomy.

Layer 2 integrations bootstrapped with incentives

The launch of Gearbox v3 marked a significant milestone for the protocol, laying the technical groundwork necessary for integrating a wider variety of DeFi protocols and facilitating layer-2 deployments . The update introduced mechanisms to fine-tune risk parameters on a per-strategy basis, enabling the protocol to incorporate newer DeFi projects while carefully managing overall system exposure to less established areas.

Gearbox is capitalizing on its recent Arbitrum LTIPP grant to further boost the adoption of composable leverage on Arbitrum L2. To incentivize users, Gearbox has launched the STIMMIES campaign, offering rewards in ARB and GEAR tokens for holding positions, trading and referring others. With 16 million GEAR and 250,000 ARB allocated, users can earn rewards every 2-3 weeks, encouraging ongoing engagement and leveraging opportunities across the platform.

Source: Gearbox Protocol

Platforms like Gearbox Protocol enhance DeFi by improving capital efficiency and flexibility. By enabling effective leverage across multiple protocols and maintaining robust security and non-custodial control, Gearbox aims to set a new standard in the industry. The protocol’s features and strategic expansions promote broader DeFi adoption, paving the way for more sophisticated and accessible decentralized financial systems.