The Cost of Over-Collateralization: The Deadlock of Inefficient Capital

In the current stablecoin system, the underlying structure of over-collateralization is a formidable structural constraint. To avoid liquidation risks, users need to collateralize assets at a high ratio, thereby sacrificing capital efficiency.

Whether it is Liquity's requirement of 110% collateral for borrowing LUSD or the Satoshi Protocol allowing a minimum of 120% Bitcoin collateral ratio to mint satUSD, essentially, they cannot break the high-efficiency capital dilemma of '1 dollar collateral ≠ 1 dollar borrowing'.

If we want to improve leverage efficiency and unlock dormant capital, relying solely on refined liquidation mechanisms is far from enough. The key lies in how project teams can mobilize the 'useless' redundant collateral assets in the system to achieve a dynamic balance between returns and risks.

Recently, New Sauce has been paying attention to a new project @AltitudeFi_. It is currently still in the Closed Beta stage, and DC is whitelisting. AltitudeFi attempts to address the traditional DeFi capital inefficiency problem with a yield-driven lending architecture. Its mechanism can be understood as follows:

(1) 'Saving on loans' is no longer just a gimmick but a product of structural design:

🔵 The platform will automatically scan the market to allocate the optimal interest rate for borrowers.

🔵 More importantly, it will invest unused collateral (i.e., idle capital) into external yield protocols to obtain additional returns.

🔵 The returns will automatically flow back to repay the principal and interest of the loan, essentially using 'returns to service debt', relieving the burden on users.

(2) What is idle capital?

For example, if you have collateralized ETH worth $1,000, theoretically, you could borrow $800 USDC (LTV = 80%). But if you only borrowed $300 (LTV = 30%), the remaining unused $500 is the 'sleeping' capital, and AltitudeFi will allocate this capital to more efficient yield paths.

(3) What happens when the price of collateral assets fluctuates?

🔵 If the price of ETH rises, your LTV automatically decreases, and AltitudeFi will increase leverage, allowing more assets to participate in yield generation.

🔵 If ETH falls, the system will automatically reduce positions, lower the borrowing ratio, and decrease liquidation risks. The entire process requires no manual intervention from users, replacing emotions with algorithms to achieve dynamic optimization of collateralized loans.

In an era of structural rate compression and liquidity overflow, making assets move is more valuable than ensuring they remain static. AltitudeFi's attempt is not a revolutionary reconstruction, but by introducing a 'return flow' mechanism beyond liquidation protection, it may just be one of the optimal solutions in the era of over-collateralization.