Silo is a decentralized lending protocol that offers permissionless and risk-isolated lending markets for all crypto assets.
Silo is a decentralized lending protocol that creates permissionless, risk-isolated lending markets for all crypto assets. Unlike shared-pool lending protocols like Aave and Compound, Silo uses an isolated-pool approach where every token asset has its own lending market paired against the bridge assets ETH and XAI. On Arbitrum, the bridge assets are ETH and USDC. Silo also forked a version of the protocol that features crvUSD as the only bridge asset. This approach ensures that lenders in all pools are only exposed to the risk of ETH and XAI at any given time. Silo's isolated approach allows users to lend and borrow assets without relying on a centralized entity and ensures that every market is a separate pool, thereby reducing the risk of exposure in the event of an exploit. In a recent update, XAI's collateral status was removed to derisk and scale the platform's revenues.
Silo imposes a protocol fee of 10% on generated interest. In addition, Silo has several other fees that can be turned on or off via governance, including an entry fee and a liquidation fee. The entry fee is taken during the opening of a borrow position and can be set to a maximum of 100%. The liquidation fee is taken on every successful liquidation and can also be set to a maximum of 100%. The protocol fee, entry fee, and liquidation fee can all range from 0% to 100%, with a maximum value of 100% to prevent accidental damage to the protocol.
Silo is exposed to various risks such as oracle manipulation, collateral shortfall, insolvency, liquidation, and governance attacks. The protocol relies on Uniswap V3 and Balancer V2 oracles to read prices of token assets, making it vulnerable to oracle manipulations that may lead to cascading liquidations. Additionally, collateral shortfall risks arise due to rapid and large changes in the price of tokens being used as collateral, while insolvency may occur if liquidators are unable to liquidate under-collateralized positions fast enough. Liquidation fees may also be hefty. Silo uses full-collateralization liquidation where your entire collateral is given to a liquidator to sell off and pay back your loan. If your collateral is liquidated, you are only left with the funds you have borrowed. Governance-induced loss of funds is also possible, with examples of adding a malicious token asset as a bridge asset to all Silos. In such scenarios, attackers can drain funds across the entire protocol. Additionally, since deploying a silo is permissionless, it's possible to create an on-chain vote to deploy a malicious silo. Users depositing funds into the silo can lose their funds, and the community may choose to deploy a silo for a known token asset that happens to be a rug project.