Overview

Diffuse Prime is a non-custodial lending protocol for structured leverage with isolated risk. It is built on custom ZK/TEE infrastructure as part of our zkServerless vision, combining verifiable computation with high-performance execution.

The protocol connects three main actors:

• Lenders earn sustainable yield by providing liquidity into curated vaults.

• Borrowers (professional funds and trading firms) access collateralized leverage to run advanced DeFi strategies.

• Curators define vault parameters, risk limits, and strategy sets to balance utilization with security.

A typical strategy example is boosting Pendle PT token yields from ~12% to ~25% by applying controlled leverage through a vault.

Key mechanics

• Collateral utilization Traditional protocols like Aave or Morpho use borrower collateral only as security. While this simplifies liquidation, it leaves collateral idle and reduces efficiency. Diffuse Prime deploys both the borrower’s collateral and the lender’s base asset into yield strategies. This increases capital efficiency but requires precise liquidation logic. Instead of relying on multisigs or on-chain approximations, Diffuse Prime uses a verifiable off-chain liquidation engine with high computational capacity.

• Trustless verifiable oracles Custom ZK/TEE oracles provide live inputs for risk parameters and liquidation triggers. This ensures decisions are transparent, reproducible, and not dependent on a centralized operator.

• Borrowing interest Borrowers pay a fixed APR on funds sourced from lenders. Each position has a clear health factor and liquidation price, while lenders can estimate returns based on target APR. This keeps incentives transparent for both sides.

• Liquidation process If a position breaches the liquidation threshold (LTV too high), the liquidation engine unwinds it.

  • Assets are withdrawn from the active strategy and sold to repay the debt.

  • Liquidation can be partial (restoring health without closing the position fully) or full (in case of sharp market moves).

  • Liquidators are incentivized with a small penalty fee or discount on collateral.

  • After covering debt and fees, any remaining collateral is returned to the borrower.

The liquidation process is designed to protect lender capital first, while minimizing unnecessary losses for borrowers.