# Why BetterBank

#### BetterBank's primary innovation: **Merging Seigniorage with Lending & Borrowing**

BetterBank introduces a **novel financial model** that fuses **seigniorage mechanics** with **lending and borrowing**. This combination **redefines capital efficiency**, providing sustainable liquidity and yield opportunities that **TradFi and existing DeFi platforms cannot match**.

**Solving the Algorithmic Peg Problem**

Historically, **algorithmic stablecoins (i.e. pegged tokens)** have suffered from unsustainable economic models. Many have faced **runaway inflation, loss of peg, or outright collapse**, leaving investors as exit liquidity. BetterBank **solves this abandonment problem** by integrating its seigniorage model with a **robust lending and borrowing ecosystem**, ensuring **continuous economic activity, utility, and deep liquidity** for its synthetic assets.

**How BetterBank Enhances Capital Efficiency**

1. **Seigniorage-Backed Collateral** – The protocol’s synthetic asset system (Favor Tokens) acts as **on-chain credit**, creating a **self-sustaining loop** where liquidity fuels borrowing, and borrowing sustains liquidity.
2. **Dynamic Market Adjustments** – Unlike traditional money markets, BetterBank’s system **dynamically expands or contracts supply growth** based on real demand, avoiding artificially controlled inflation.
3. **Yield Optimization Beyond TradFi's Capabilities**– TradFi lending platforms offer low returns due to **high operational costs and inefficiencies**. BetterBank's [Stronghold](https://betterbanks-organization.gitbook.io/better-bank/protocol-mechanics/the-stronghold), by contrast, leverages **high yield opportunities**, providing **impressive APY's** that remain sustainable over time.

**Preventing Pitfalls of Both TradFi and of Earlier DeFi Models**

* **No Zero-Sum Liquidity Traps** – Unlike previous DeFi projects where **early adopters drain liquidity**, BetterBank ensures that **contributing to long-term growth is the more profitable option for any participant**, be they early or lat&#x65;**.**
* **Resilient Against Bank Runs** – Liquidity crises often lead to Bankruptcy in TradFi and  to **death spirals** in DeFi. BetterBank integrates **automated credit adjustment** and **liquidity recovery** that prevents liquidation cascades and ensures **long-term capital stability**. ([See Protocol Mechanics](https://betterbanks-organization.gitbook.io/better-bank/protocol-mechanics))
* **Sustainable High Yield Generation** –  Many DeFi projects produce tokens that have their sell value as their primary, and often only, value. BetterBank instead produces tokens that keep their value upon use, and this **value generation results in sustainable high yields**.

BetterBank is not just another lending protocol—it is a **fundamentally new financial paradigm** that eliminates the inefficiencies of both **TradFi and previous DeFi models**. By merging seigniorage-based synthetic assets with **highly efficient lending**, BetterBank creates a **future-proof, yield-generating ecosystem** with unmatched **capital efficiency and risk mitigation**.
