Altitude, a DeFi lending service that brings capital efficiency by automating dormant funds in overcollateralized loans to seek additional yield opportunities, today announced the completion of a $6.1 million seed round of financing.
Blockchain technology has opened the door to lending mechanisms that hadn’t been possible before. Now, users can borrow funds without any credit history, Know Your Customer (KYC) verification, or even registration. By leveraging permissionless infrastructure and unique economic practices, lending has quickly become the main use case in decentralized finance (DeFi), accounting for over one-third of the total value locked (TVL) in DeFi apps as of the end of 2023.
Nevertheless, DeFi lending is still far from mainstream adoption, and the unique advantages come at a price, namely overcollateralization.
With no credit history and registration, borrowers must lock in an amount of crypto that exceeds the loan’s value as collateral. A common scenario involves a borrower providing their Ethereum (ETH) or Bitcoin (BTC) as collateral and borrowing USD-denominated stablecoins.
The loan-to-value (LTV) ratio, which measures how much one can borrow relative to the collateral, is often set at low levels to minimize the risks to lenders caused by the price volatility of the collateral. While safer for lenders, low LTVs result in significant unused capital sitting idle and untapped. This creates high capital inefficiency in the DeFi lending and borrowing markets.
Novel approach to DeFi lending raises $6.1 million
Achieving capital efficiency in relation to collateralized debt is a difficult task, but Altitude, a novel DeFi lending service, has found the solution. The protocol automates the management of collateralized debt by adjusting the LTV ratio in real time. With this approach, capital efficiency can be maximized while maintaining a safe liquidation risk profile.
Dormant capital for a loan started at 30% LTV. Source: Altitude
Altitude is only starting its journey, but it has already attracted interest from major players and recently completed a $6.1 million seed round. Previously, the protocol secured $2.1 in pre-seed funding from a pool of Web3 builders and then raised a further $4 million from Tioga Capital, New Form Capital, Flow Ventures, UDHC, GSR, Owl Ventures, alongside prominent angel investors, such as Marc Zeller of AAVE as well as others, to close out the round.
Commenting on the investment, Michiel Lescrauwaet, managing director at Tioga Capital, said:
“Crypto lending is already a cornerstone of the DeFi sector, but its full potential remains untapped. Altitude’s novel approach will catalyze the next wave of growth by giving DeFi investors peace of mind while generating better yields.”
Capital efficiency via automation — how does it work?
If the value of the collateral increases and Altitude determines that a loan has excess available collateral, the protocol allocates it to various platforms to generate income. If collateral is suddenly needed back to secure the loan, the protocol automatically rebalances the loan to maintain the targeted LTV.
Additionally, Altitude connects with major DeFi lending protocols and yield aggregators to get better rates and seek yields. When users take out loans from the Altitude vault, the system optimizes their capital by:
- Refinancing user loans continuously at the best available rates, e.g., from Compound (COMP), Aave (AAVE), and others;
- Actively managing the dormant capital to generate yield;
- Repurposing the generated yield to reduce the user’s debt.
In this way, the debt is gradually reduced even when users fail to repay it.
How does Altitude loan benefit over time. Source: Altitude
Founded by a collective of Web2 and Web3 veterans, Altitude aims to transform the DeFi lending space by maximizing capital efficiency. “Having been in DeFi since before it was called that, I’ve always had to manage loan positions manually, which is not only time-consuming but also higher risk. We are building Altitude to automate what people do every day to ensure their capital is working as hard as it can,” said Tobias van Amstel, one of the co-founders of Altitude.
Closed beta coming soon
The risk of liquidation or human error is greatly reduced through automation, as Altitude’s algorithms do all the work behind the scenes in real-time to achieve capital efficiency.
Altitude has successfully completed on-chain testing and will soon move to a closed beta, available to whitelisted addresses, followed by a full launch. As the protocol gains traction, the company plans to expand to other EVM-compliant L1/L2s and integrate with all leading lending protocols and yield sources.
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