Silo, a platform for borrowing and lending crypto, has released Silo v3, a new version of its system. This update challenges a common idea in the decentralized finance (DeFi) world – the need to instantly convert borrowed collateral into the asset being borrowed to ensure the lending market remains stable.
Silo v3 features a new system that safeguards lenders, even if collateral can’t be quickly sold on decentralized exchanges. This update separates the ability to repay loans from needing to instantly sell collateral, allowing lending markets to grow based on the actual value of assets, not just how easily they can be traded. This is a significant change from how most DeFi lending platforms currently work.
A major challenge in the world of DeFi is a lack of readily available funds. Many digital assets have genuine value, but without enough instant access to funds on the blockchain, they can’t be easily used for borrowing or lending, or they create extra risks for those providing loans.
Silo v3 eliminates the need to rely on constant market activity. We’ve rebuilt how lending works so that lenders are directly paid through discounts and fees when collateral is sold, rather than depending on a liquid market. This makes lending safer for lenders and allows us to support a wider range of assets as collateral.
We see Silo v3 as a major upgrade to lending on the blockchain. It allows more types of assets to be used as collateral and improves the overall security of these lending platforms.
— Silo Founding Team
A Structural Problem in DeFi Lending
As an analyst covering DeFi, I’ve observed that most lending platforms handle the risk of borrowers becoming insolvent by liquidating their assets. Essentially, if a borrower doesn’t have enough collateral backing their loan, the protocol automatically sells that collateral – typically on a decentralized exchange – to ensure lenders get their funds back.
That idea often doesn’t hold true in reality. When markets face difficulties, it can become hard to find enough buyers and sellers, making transactions expensive or even impossible. This makes it difficult for lending to work smoothly as it grows.
How Silo v3 Changes the Model
When selling collateral on the market isn’t possible or doesn’t yield enough profit, Silo v3 ensures it can still repay lenders by directly exchanging the collateral for the borrowed asset, keeping the system stable.
Silo v3 markets each have two fixed price points that trigger liquidation of collateral. If the price falls past the DEX Liquidation Threshold, positions are closed using decentralized exchanges or by redeeming assets. If the price falls further, past the Collateral-Debt Swap Threshold, the system automatically converts the collateral into the borrowed asset at a slightly reduced price. This ensures lenders are fully repaid, even if there are problems with external markets or a lack of available funds.
Liquidations as a Source of Yield
With Silo v3, liquidations aren’t just about preventing losses. The fees paid during these events mostly go to lenders as compensation for the risks they take when the market is unstable. This means liquidations can also be a way for lenders to earn extra income, on top of the interest they already receive.
Expanding the Scope of Onchain Credit
Silo v3 allows lending platforms to support more types of digital assets by eliminating the need to sell collateral to repay loans. This opens the door to assets like those used in providing liquidity, staked tokens, locked investments, and even assets that rely on processes outside of the blockchain, which previously couldn’t be easily used as loan collateral due to their fluctuating or less-accessible value on exchanges.
Silo points out that its system isn’t meant to guarantee loans for poor-quality assets. Whether an asset is considered good or bad still depends on what buyers and sellers think, not on rules built into the system itself.
Isolated Markets and Risk Transparency
Silo functions by creating separate lending markets for each asset. Each market connects a specific collateral type with the asset being borrowed. This setup limits risk from spreading between different assets and enables customized settings for each one.
Silo v3 introduces a new lending app that adds clear risk assessments and complete transparency about how the system works. Users can easily understand potential liquidation scenarios, which external data sources are used, and how their collateral is expected to perform even in difficult market conditions. This makes the risks much clearer than with many other lending platforms.
About Silo
Silo is a lending platform that lets users borrow and lend within separate, independent markets. It also offers tools to manage these lending markets across different blockchains.
For more information, visit: Website | X | Discord | Telegram | GitHub
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2026-03-27 07:24