Overview
Silo Finance launched in 2022 with a clear thesis: shared-pool lending protocols (like Aave V2 or Compound V2) create systemic risk by pooling all assets together, where one toxic asset can endanger the entire protocol. Silo's solution is simple and elegant — every token pair gets its own isolated lending market (a "silo"), and each silo only pairs with a bridge asset (ETH or a stablecoin). This means a collapse in an obscure token only affects its own silo, not the broader protocol.
The design was validated in hindsight by events like the CRV near-liquidation crisis, where concentrated positions in a shared pool threatened cascading liquidations across multiple assets in Aave. In Silo's model, such contagion is structurally impossible.
Silo V2, launched in 2024-2025, introduced significant improvements including configurable silo parameters, improved interest rate models, and enhanced capital efficiency features. The protocol operates on Ethereum, Arbitrum, and Sonic (formerly Fantom), with Arbitrum being the largest deployment.
Smart Contracts
Silo Architecture
Each silo is an independent lending market with its own liquidity pool, interest rate curve, and risk parameters. Silos are structured as token/bridge-asset pairs (e.g., LINK/ETH, ARB/USDC). The bridge asset (ETH or a stablecoin) connects silos indirectly but does not create shared risk pools. This per-market isolation is the core architectural decision.
Silo V2 Improvements
V2 introduces more flexible silo configurations, allowing custom collateral factors, interest rate models, and oracle sources per silo. Hook modules enable extensions like points programs, custom liquidation logic, and integration features. The architecture is more modular and extensible than V1.
Code Quality
Silo's contracts are open source and well-structured. The per-market isolation simplifies each silo's logic compared to multi-asset pool contracts. V2's modular hook system adds complexity but follows clean separation of concerns. Code quality is professional.
Security
Audit History
Silo has been audited by ABDK Consulting, Quantstamp, and others. Each major version upgrade receives dedicated audits. The isolated market design reduces the security surface per silo — a vulnerability in one silo cannot propagate to others.
Risk Isolation Advantage
Silo's primary security advantage is structural. In shared-pool protocols, a single oracle manipulation or price crash can cascade across all assets. In Silo, the blast radius is limited to the affected silo. This design philosophy is inherently more secure for the protocol as a whole, even if individual silos face the same risks as any lending market.
Track Record
Silo has operated since 2022 without a major exploit. The protocol navigated volatile market conditions, including the CRV crisis and various token depegging events, without systemic issues. The clean track record across three years of operation is a positive signal.
Risk Management
Per-Silo Risk Parameters
Each silo has independently configurable LTV ratios, liquidation thresholds, borrow caps, and interest rate curves. This granularity enables precise risk management per token — volatile tokens can have conservative parameters without affecting the entire protocol. Risk parameters are set by governance with input from risk advisors.
Oracle Design
Each silo uses oracles appropriate for its specific token pair. The per-silo oracle design means an oracle failure only affects one market, not the entire protocol. This is a significant advantage over shared-pool protocols where a single oracle failure can create protocol-wide risk.
Liquidation Mechanism
Liquidations are handled per-silo with standard health-factor-based triggers. The isolated design means liquidation cascades cannot propagate between silos. Liquidator incentives are configurable per market to ensure reliable liquidation even for less liquid tokens.
Adoption
TVL & Usage
Silo's TVL has grown to approximately $200-500M across all deployments, with Arbitrum and Sonic being the largest. Adoption has been steady but modest compared to top-tier lending protocols. The protocol has found particular traction for long-tail assets that cannot be safely listed on shared-pool protocols.
Market Position
Silo occupies a clear niche: the safe lending protocol for long-tail assets. For users who want to borrow against tokens that Aave won't list (due to shared-pool risk), Silo provides the only responsible option. This niche is valuable but inherently smaller than the mainstream lending market.
Permissionless Markets
Silo V2 supports permissionless market creation, allowing anyone to create a silo for any token. This opens a long-tail of lending markets that would never pass Aave or Compound governance. Adoption of permissionless markets is growing but early.
Tokenomics
Token Overview
SILO is the governance token with a fixed supply. Distribution includes community allocations, team, investors, and incentive programs. The token enables governance participation and incentive direction.
Revenue Model
Protocol revenue comes from a share of interest rate spreads across all silos. Revenue scales with TVL and borrow utilization. The per-silo model means revenue is distributed across many small markets rather than concentrated in a few large pools.
Challenges
SILO token has not seen strong price appreciation despite solid protocol fundamentals. The niche positioning limits the total addressable market, and protocol revenue, while growing, is modest compared to top lending protocols. Tokenomics improvements could strengthen value capture.
Risk Factors
- Capital efficiency trade-off: Isolated markets fragment liquidity, meaning each silo has less depth than equivalent pools in shared protocols. This results in higher interest rates and less competitive borrowing costs.
- Niche positioning: The isolated lending thesis appeals to a specific user segment. Mainstream borrowers with blue-chip collateral may prefer Aave's deeper liquidity and lower rates.
- Bridge asset risk: While silos are isolated from each other, all silos share exposure to the bridge asset (ETH or stablecoins). A bridge asset failure would affect all connected silos.
- Liquidity fragmentation: Many small silos with limited deposits can result in poor UX — high rates, low available liquidity, and wide spreads for less popular markets.
- Adoption ceiling: The protocol's conservative, risk-first design may inherently limit growth compared to more aggressive competitors.
Conclusion
Silo Finance offers the clearest implementation of risk-isolated lending in DeFi. The per-silo design is not just a feature — it is a fundamentally different risk philosophy that prevents the contagion events that have threatened shared-pool protocols. For long-tail asset lending, Silo is the responsible choice.
The 6.4 score reflects excellent risk management design (the highest score in this report), solid security, and clean operation, offset by limited adoption and the structural capital efficiency trade-offs of market isolation. Silo will likely never match Aave's TVL — and that's by design. The protocol prioritizes safety over scale, which is the right trade-off for many users but limits its commercial potential.