Bonzo Finance: The Liquidity Layer of Hedera

Bonzo Finance’s mission is to become The Liquidity Layer of the Hedera DeFi ecosystem — unlocking previously dormant liquidity and enabling lending and borrowing capabilities that were previously not possible for retail and institutional users. The protocol harnesses the full potential of Hedera's EVM equivalence, tooling, and mirror node infrastructure, with a symbiosis that ensures a high efficiency, low cost, and user friendly experience.

Bonzo Finance supports a diverse range of assets, including HBAR, HTS tokens, and stablecoins, such as USDC, enabling users to lend and borrow in an overcollateralized fashion across a broad spectrum of the Hedera economy.

The protocol's overcollateralized loan system enables borrowers to access capital by providing collateral into single asset liquidity pools, with loan-to-value (LTV) ratios calibrated to maintain protocol stability. For more sophisticated users and developers, Bonzo Finance offers flash loans – instant, uncollateralized loans that open the door to more complex DeFi operations.

Lenders benefit from competitive and auto-compounding yield on deposited assets, with rates dynamically adjusting based on market demand, ensuring optimal capital efficiency. The user experience is further enhanced by seamless integration with ecosystem wallets, including HashPack, Kabila, and Blade, through WalletConnect, with MetaMask (Snaps) support coming soon, making the protocol accessible to a wide range of users.

Verifiable, Auditable Points Program: Hedera Consensus Service (HCS-20)

Bonzo Finance is revolutionizing incentive models in the Hedera DeFi ecosystem by employing a points program that utilizes the HCS-20 (Hedera Consensus Service) standard. Unlike traditional points systems found across web3 that rely on opaque, centralized databases, this program leverages the Hedera Consensus Service (HCS) to create a fully verifiable, transparent, and auditable reward system.

Inspired by successful point program models like LayerZero’s cross-chain messaging protocol, as well as Kamino and Marginfi, found on the Solana network — Bonzo Finance's approach ensures that all points earned are recorded on-chain, allowing users to independently verify rewards without relying on a centralized authority.

This decentralized architecture not only incentivizes the lending and borrowing of liquidity, but also aligns with web3 principles of transparency, data ownership, and trustless operations. By utilizing HCS, Bonzo Finance sets a new standard for fair and open reward systems in DeFi, where users can trust the process itself rather than a central entity, democratizing the concept of loyalty programs across the DeFi industry.

The Hedera Network’s Oracle Price Feed Integrations

In February of 2024, the Hedera mainnet was officially integrated into Supra and Pyth oracles, ensuring reliable price feeds for crypto assets found across the Hedera economy and making those feeds accessible to EVM smart contract-based protocols and applications.

Bonzo Finance has integrated Supra oracles, with Pyth and Chainlink coming soon, to ensure accurate and timely asset pricing — a critical requirement for maintaining healthy loan-to-value (LTV) ratios for credit markets and triggering liquidations when necessary. By implementing redundant oracle solutions, Bonzo Finance has created a resilient system that can more strongly withstand potential oracle failures or potential attacks.

The Hedera Advantage: Liquidation Bot & Flash Loan Ecosystem

Bonzo Finance is building ecosystems around two key developer-focused activities — liquidation bots and flash loans, both of which showcase the unique advantages of building and deploying DeFi protocols on the Hedera network.

Liquidation Bots

Liquidation bots are automated programs, operated by anyone in the ecosystem, that monitor the health of loans on the Bonzo Finance protocol. When a borrower's supplied collateral value falls below the required threshold, liquidation bots quickly liquidate the position to protect lenders, and receive a reward incentive for performing this activity. On Hedera, liquidation bots operate with distinct advantages:

• MEV Resistance: Hedera's fair transaction ordering mitigates Miner Extractable Value (MEV) attacks, ensuring a level playing field for all liquidators. This prevents front-running and other exploitative practices common on other networks.
  
  

• Micro-Liquidations: Hedera's low, fixed fees make even small liquidations economically viable. This leads to more frequent, smaller liquidations, resulting in healthier markets and better protection for lenders. Borrowers also benefit from more granular liquidations that don't overly penalize them.
  
  

• High-Speed Execution: Hedera's fast finality (3-5 seconds) allows liquidation bots to act swiftly, maintaining protocol health during rapid market movements. This quick response time is crucial in volatile crypto markets.

Flash Loans

Flash loans are uncollateralized loans, built using smart contracts, that must be borrowed and repaid within a single transaction. They allow users to temporarily access large amounts of capital for complex DeFi strategies, arbitrage, or collateral swaps, using decentralized exchanges, such as SaucerSwap. Hedera's network infrastructure makes flash loans particularly powerful:

• Atomic Transactions: Hedera's support for atomic composability enables complex, multi-step DeFi strategies to be executed within a single transaction. This ensures that flash loans are either completely successful or entirely reverted, eliminating partial execution risks.
  
  

• High Throughput: The high throughput of Hedera’s EVM (350+ TPS) allows for multi-transaction flash loans to operate without network congestion or delay. This scalability supports complex trading opportunities and strategies.
  
  

• Low, Fixed Fees: Hedera's fixed, predictable fees make flash loans more accessible and profitable for users, enabling a wider range of strategies to be economically viable, fostering further innovation in the DeFi ecosystem on Hedera.

Ushering in DeFi 2.0 on Hedera

Bonzo Finance is spearheading the evolution of decentralized finance on Hedera — helping usher in what's being dubbed as DeFi 2.0. This next generation of DeFi represents a significant leap forward, with integrations into critical web3 infrastructure, the deployment of new DeFi protocols, and anticipated growth of key DeFi ecosystem health metrics, such as total-value-locked (TVL), trading volume, and stablecoin (native $USDC) liquidity.

Bonzo Finance is contributing across a few key areas:

Stablecoin Liquidity & Utilization

Bonzo Finance has the opportunity to help transform the native stablecoin ($USDC) landscape on Hedera — a key indicator of a maturing DeFi ecosystem. Lending protocols across web3 uniquely attract significant stablecoin liquidity and achieve the highest utilization (borrow) rates across supported assets, up to 85%.

Wrapped (Bridged) Asset Support

The introduction of Axelar cross-chain bridging in Q4 2024 ushers in support for wrapped major assets on Bonzo Finance and across the Hedera DeFi ecosystem, such as $wETH and $wBTC. Low-cost and ubiquitous bridging infrastructure integrations enable the ability to siphon net new liquidity and users to the Hedera network and its growing ecosystems.

DAO Governance

As part of its commitment to true decentralization, Bonzo Finance plans to transition to a DAO structure in Q2 2025, empowering the community to guide the future of the protocol. This aligns with DeFi 2.0 principles of increased user ownership and governance, ensuring that the protocol evolves in-line with the needs of its growing user base.