Texture Finance and peer-to-peer loans in Solana DeFi

Texture Finance is a peer-to-peer lending protocol on Solana, offering overcollateralized, fixed duration, fixed APY, peer-to-peer loans.

How does it work?

Texture enables users to borrow and lend tokens directly between each other, using other tokens as collateral, for a fixed period of 7 days.

Borrowers lock their collateral tokens to borrow principal tokens and have 7 days to repay the loan with interest to unlock their collateral. If the loan and interest is not repaid within the 7 day period, lenders can claim the locked collateral.

Lenders place lending offers specifying the number of principal tokens they would like to lend (offer size) and the offer price (required LTV). The APR is set by the protocol for each principal-collateral token pair, i.e. all offers in one token pair have the same APR. Offers with the highest LTV are given priority and are fulfilled first.

The protocol doesn’t rely on oracles in its design, meaning that lenders decide on how much risk they are willing to take via setting their offer price and are responsible for monitoring and adjusting their offers.

Are there fees?

Lenders don’t pay any fees on Texture. Borrowers pay a small protocol fee on their collateral when they borrow. Protocol fee varies from pair to pair, with a maximum fee being 0.21%.

What are the benefits of using Texture?

Compared to traditional pool-to-peer DeFi lending protocols Texture offers borrowers high-LTV (> 70% - 90%) short-term loans against tail-end assets (Solana ecosystem tokens and memecoins) with no liquidations for the 7 day loan term.

Texture lenders enjoy a unique high-risk and high-return (APR > 100%) lending experience due to Texture’s peer-to-peer design ensuring maximum utilization of lenders’ funds once their offers are taken.

Why borrow on Texture?

The first order use cases are (1) to take out liquidity and (2) to hedge:

  1. Borrow to get liquidity: If you need cash but don’t want to sell the tokens you hold, you can borrow at a high LTV against your tokens. This way you get the required liquidity while keeping the upside on your tokens – if they increase in price over the 7 day loan period, you simply repay the loan with interest and keep your tokens
  2. Borrow to hedge: You can hedge (or protect) yourself from a potential market downturn using high LTV loans. Say you have 100 TOKENS and the current price is $1 / TOKEN. You take out a 90% LTV loan against them receiving $90. If the TOKEN price falls to $0.70 over the course of the 7 days, you simply keep the $90 and default on your loan. You end up with $90 in your wallet as opposed to holding 100 TOKENS now worth [0.70 * 100 =] $70

Now that we’ve covered the basics, let’s dive into the more interesting use cases you can use to grow your token holdings:

  1. Buying tokens and immediately taking out a high LTV loan against them to ensure you either get upside on the tokens if the token price pumps (less interest and protocol fee), or allowing you to accumulate more of the token than you could initially buy.

    Let’s compare this strategy against a benchmark of simply buying and holding the token – the value of your portfolio will move directly with the price of the token. If you buy 100 TOKENs at a price of 1$ per TOKEN, you start with a $100 portfolio. If the price of the TOKEN drops to $0.5 the value of your portfolio will go down to $50, if the price of the TOKEN increases to $2.0 the value of your portfolio will increase to $200.

    Screenshot 2024-08-16 at 17.30.00.png

    Now let’s say you buy 100 TOKENs at a price of 1$ per TOKEN and immediately take out a 90% LTV loan. Texture charges up to 0.21% fees on borrower’s collateral, for the sake of this example let’s assume this token pair has the maximum fee. This means you will borrow [100 TOKENs * price $1 * (1-0.21% fee) * 90% LTV =] $89.8 and will have these funds in your wallet. Now let’s consider what happens in the upside (TOKEN price doubles to $2 per token) and downside (TOKEN price halves to $0.50 per token) cases:

    In other words, in the upside case you keep most of the upside (ex interest plus platform fee), and in return for having this cost in the upside case you are able to buy more tokens in case the token price falls.

    Screenshot 2024-08-16 at 17.31.03.png

  2. There are plenty of other more complex strategies you can use as a borrower on Texture. To name a couple briefly:

    1. Perp-like leveraged-long positions protected from liquidation for 7 days:
      1. Buy a TOKEN, take out a loan, use proceeds to buy more of the TOKEN, take out another loan – repeat. This let’s you build up a leveraged long position. As the lender can only claim your collateral if you do not repay the loan within the 7 day period, your position cannot get liquidated until the 7 days is up, even if the price of your collateral drops significantly. This means you are protected against big market drawdowns, while you are able to close your position and take profits at any point in time during the 7 days. Please note that while leverage amplifies returns, it also amplifies losses – use with caution.
      2. Example: https://x.com/ig0r_sol/status/1786674719472705869 🔗
    2. Volatility play positions:
      1. Texture offers $USDC and $SOL loans against a wide selection of collateral tokens as well as $BONK, $WIF and $JUP loans against $USDC collateral. This allows you to open a position where you borrow $USDC against, for example, $BONK, and then immediately borrow $BONK against the $USDC you just borrowed. If $BONK pumps, sell the borrowed $BONK for more $USDC, use the proceeds to repay your $USDC loan and be left with the original $BONK plus some $USDC on top If $BONK dumps, repay the $BONK loan and use $USDC to buy more $BONK then you started with. In case the price does not move enough – repay the loans and get back your initial $BONK less interest on the two loans and platform fees.
      2. Example: https://x.com/texture_fi/status/1810317630542082276 🔗