Lending + pledge, innovative model of decrypting the stablecoin protocol Level | CryptoSeed

Author: Fairy, ChainCatcher

Edited by: TB, ChainCatcher

On March 26, lvlUSD's market value exceeded US$100 million, and in less than a month, the growth rate reached 129%. As a stablecoin issued by the stablecoin protocol Level, lvlUSD is emerging.

In the stablecoin track, the market demand for stablecoins that are both safe and have considerable returns is growing. Recently, Level is exploring a new path to build a highly transparent, composable stablecoin lvlUSD based on lending agreements and provide risk-adjusted returns.

Level team background and development status

Level Co-founder Kedian Sun is a Wharton graduate and served as Brex’s operations manager and at Lazard. Another co-founder, David Lee, has ten years of experience as a computer engineer, worked as a software engineer at Flexport and Uber, and holds a bachelor's degree in computer science from Columbia University.

At present, Level has completed two rounds of financing, with a total amount of US$6 million. In August 2024, Peregrine Exploration, the development company behind it, announced a $3.6 million financing, led by Polychain Capital and Dragonfly Capital. In March 2025, another $2.6 million financing was completed, led by Dragonfly Capital.

lvlUSD design

lvlUSD is fully supported by USDC and USDT and can only be minted without permission through these two stablecoins. USDC and USDT constitute the reserves of lvlUSD, which are used to generate income in lending agreements. Meanwhile, the loan agreement receipt tokens representing a part of the Level lending position are deposited into the re-stake agreement to receive additional rewards.

Revenue mechanism

Level returns the loan proceeds to the user through the ERC-4626 pledge mechanism. After the user pledges lvlUSD, he will obtain slvlUSD, and its value will continue to increase as the agreement distributes the income into the staking contract. lvlUSD and slvlUSD can be transferred, traded, and redeemed freely and used in integrated DeFi protocols.

1. Generation of loan income

To generate revenue, Level supplies USDC and USDT to blue chip lending agreements such as Aave. Currently, all reserves are deployed in Aave, but these reserves will soon be spread into other lending protocols such as Morpho. Collection tokens from these protocols (such as Aave's aUSDC or aUSDT) are packaged as income-generating assets.

2. Profits are allocated to slvlUSD

Level will allocate the loan proceeds obtained by the agreement to slvlUSD (i.e., the pledged lvlUSD). Therefore, users must pledge lvlUSD to the pledge contract or vault to receive slvlUSD, representing their share in the vault. As the income increases, the value of slvlUSD will gradually appreciate.

3. slvlUSD income is higher than the underlying lending income

Since all lvlUSD reserves are used to generate lending income, but only slvlUSD can earn, slvlUSD's income is higher than the underlying lending income. When there are fewer lvlUSD pledged, slvlUSD benefits are higher and vice versa.

4. Unpled pledge and withdraw

When the user unstakes, slvlUSD will be destroyed. The user will obtain the corresponding lvlUSD share based on the ratio of the total lvlUSD held in the contract to the outstanding slvlUSD supply. After the pledge is unsolicited, the user needs to wait 7 days before withdrawing lvlUSD.

Risks facing Level Agreements

According to the project's official website information, you may face the following risks when using the Level Agreement:

• Collateral risk: The risk of collateral may be insolvent.
• Lending Agreement Risk: The underlying lending agreement may accumulate bad debts.
• Pledge Risk: Operators of pledged assets entrusted to may be subject to penalties, resulting in bankruptcy.
• Smart Contract Risk: A smart contract for deploying or managing lvlUSD collateral may have vulnerabilities that will lead to lvlUSD bankruptcy.
• Operational Security Risk: Certain features of the protocol (such as the Emergency Collateral Rescue feature) are controlled by permission roles that may be destroyed.

To address these risks, Level has taken several mitigation measures. For example, Level only accepts USDC and USDT as collateral and sets strict standards for the selection of lending agreements; strengthens operational security, adopts a multi-signature mechanism and cold wallet to ensure the security of administrator rights, etc.

The Level protocol provides new possibilities for the stablecoin track through innovative revenue mechanisms. However, whether it can break through with its unique income model and risk management strategy still needs to be verified by the market.

(This article only introduces early projects and is not used as investment advice.)