In the evolving landscape of decentralized finance, an intriguing concept is making waves – isolated pools. To fully grasp the essence and potential of isolated pools, we first need to understand the nature of common pools, which currently dominate the DeFi lending market.

The Limitations of Common Pools

Many lending markets operate on a common collateral pool model. In this model, all assets are deposited into a single liquidity pool, which the protocol can then use to make loans to others​.

Although this model offers capital efficiency by allowing the protocol to easily draw funds for loans at scale, it also exposes all assets in the pool to the risk associated with a single asset's failure. This necessitates a conservative risk profile for chosen assets, limiting the options to a small selection of relatively low-risk assets like Bitcoin (BTC), Ethereum (ETH), or Binance coin (BNB) and leaving few options for users interested in lending or borrowing newer or riskier assets​​.

Introducing Isolated Pools

Now, envision a decentralized finance environment where lenders and borrowers are not confined by the risk profile of a common pool.

Enter the concept of isolated pools.

In this independent lending environment, separate from the main protocol pool, users can choose which pools to participate in based on their personal risk preferences. More conservative users can stick to the main protocol pool while those willing to engage in lending riskier assets can participate in the isolated lending pools​.

Why BNBx Isolated Pools Are Needed

Consider the case of BNBx, the liquid staking derivative by Stader. In the traditional common pool approach, users could be deterred from lending BNBx if it's deemed too risky compared to the other assets in the pool. However, with the introduction of isolated pools, BNBx can have its own dedicated lending pool. Users can now choose to participate in this BNBx isolated pool based on their risk appetite.

Isolated pools, such as those for BNBx, unlock a new level of flexibility and potential for growth in liquid staking. They enable users to take loans by offering any BNB Chain tokens, including BNBx, as collateral. When launched, protocols like Venus will provide its securities to this private borrow/lending pool, paving the way for previously non-existent use cases for some assets.

Moreover, Venus aims to include a risk rating system that analyzes a range of exchange data and lending market metrics for assets to create a custom pool risk rating. This system would facilitate users in identifying which custom pools align with their personal risk preferences​.

Conclusion

By shifting towards isolated markets, we can usher in the next phase of growth in DeFi, offering users the freedom to manage their risk and enabling a wider variety of assets to be included in the lending market.

The introduction of isolated pools such as BNBx will be a major stride towards democratizing the DeFi space, providing every user the freedom to choose and thrive in their desired risk environment.