Modular lending infrastructure boosts DeFi borrowing with multi-collateral solutions

Gearbox Protocol, a modular lending infrastructure, allows DeFi users to take out loans using multiple assets as collateral, while still being able to use those assets for other purposes, offering greater flexibility and efficiency.

Onchain lending, a decentralized alternative to traditional loans, has surpassed $30 billion in market value. This surge is driven by the appeal of bypassing traditional intermediaries like banks, offering users the ability to borrow and lend directly on blockchain networks, thus maintaining full control over their assets. As decentralized finance (DeFi) grows, users increasingly seek more flexible and efficient alternatives to traditional finance.

Onchain lending total value locked. Source: DefiLlama

However, traditional onchain lending models often require borrowers to lock up assets as collateral, limiting their ability to adjust their positions or use their assets productively during the loan period. This limitation means borrowers could miss out on opportunities in rapidly changing markets, which has fueled a shift toward more dynamic lending options that keep assets accessible and adaptable.

One such alternative is multi-collateral lending, where borrowers can use a portfolio of assets to secure loans. Unlike traditional models, this system keeps collateral accessible, allowing borrowers to continue participating in DeFi activities like trading, staking and yield farming.

Gearbox Protocol, a decentralized modular lending infrastructure, contributes to this development by offering a system that embraces multi-collateral loans and aims to provide more flexible borrowing options. As a modular lending infrastructure, Gearbox gives users more control over managing their loans and collateral through customizable options, setting it apart from traditional, rigid systems.

Dynamic collateral for enhanced control

Designed to improve asset management in onchain borrowing, Gearbox Protocol’s system allows users to optimize their portfolios without locking their assets away, giving them more control and efficiency throughout the loan period.

How Gearbox’s lending system works. Source: Gearbox Protocol

By combining different asset types, such as cryptocurrencies like Ether (ETH) and stablecoins like USD Coin (USDC), borrowers can diversify their collateral to mitigate risks associated with market volatility. This approach offers greater stability, allowing users to tailor their borrowing strategies based on their risk tolerance and market conditions.

Navigating volatility with liquidity

DeFi lending has traditionally struggled with the challenge of managing locked collateral in volatile markets and inflexible peer-to-pool models, where borrowers take loans from shared liquidity pools with fixed terms and limited options for adjusting collateral.

Gearbox Protocol aims to address these challenges by keeping collateral liquid and accessible through an isolated smart contract wallet, called a Credit Account (CA). This enables borrowers to deposit collateral while maintaining control of their assets, allowing them to switch between asset types without repaying the loan first. With this flexibility, borrowers can manage their collateral in real time, responding to market conditions and adjusting their strategies.

To provide this flexibility, Gearbox Protocol leverages account abstraction, a technology that separates the loan contract from the collateral itself. This feature isolates collateral in a Credit Account, allowing borrowers to move assets, rebalance portfolios and use their holdings for other DeFi activities while the loan is active. The ability to adjust and manage collateral in real time gives borrowers critical advantages, particularly in volatile markets, further minimizing the risk of liquidation.

Gearbox Protocol lets borrowers use multiple assets as collateral while keeping them accessible for flexible management. Source: Gearbox Protocol

Also addressing one of the key limitations of traditional flat-rate models, Gearbox Protocol addresses the fixed interest rate problem of traditional models by customizing borrowing rates based on the risk profile of the collateral. Borrowers using well-established assets like Bitcoin (BTC) or ETH enjoy lower rates, while those using more volatile tokens face higher costs.

Linking assets to broader networks

This flexibility in borrowing rates is a key part of Gearbox Protocol’s broader goal of expanding its supported assets and services. With support for over 20 assets, Gearbox Protocol is live on major networks such as Ethereum mainnet, Optimism and Arbitrum.

Gearbox Protocol recently expanded its ecosystem by adding support for loans against Mellow Liquidity Relayer Tokens (LRTs) — tokenized vaults that allow users to optimize yield strategies — further enhancing the platform’s capabilities.

With its multi-collateral loan system, Gearbox Protocol envisions a transformation in DeFi lending by offering enhanced liquidity, flexibility, and tailored borrowing options. The protocol aims to address the current challenges in decentralized lending by innovating with account abstraction and risk-aligned borrowing rates.

As multi-collateral loans gain traction, protocols like Gearbox Protocol are reshaping the DeFi landscape, allowing users to fully utilize their assets without locking them away, and creating a more adaptable and accessible financial ecosystem.