Paribus: Next Generation Borrowing and Lending

As we’re moving closer to the launch of the Paribus MVP in Q1 we continue our series of articles looking at how the MVP will work, along with some of the more general concepts of borrowing and lending cryptocurrency. First, let’s look at why someone would want to use a borrowing and lending platform.

For those currently enrolled on the Paribus staking program the benefits of lending, or staking, are self-evident. If you’re not planning on selling your tokens for a while it makes sense to put them to use generating passive income. This is how the lending side of Paribus will work for people who want to lend their tokens to a pool.

As Deniz, our CEO explains, “Participating in borrowing and lending systems essentially creates an additional layer of abstraction that can allow already owned funds to create more funds which work for you by generating passive income. Passive income is the key to rapidly growing net worth over time.”

One aspect of the abstraction that Deniz mentions is about distancing your emotions from your trades and that’s where both sides of a borrowing and lending platform help users. We’ve all experienced the rampant fear in the market over the past few months and there’s always the question as to whether to sell and buy other tokens.

There have been several studies looking at various approaches such as timing the market vs HODLing. Getting into a project early and holding onto your tokens always outperforms every other strategy, but it’s hard to have diamond hands when you’re surrounded by influencers telling you a different token will be the next 100x gem. This is where the borrowing side of our MVP comes in.

Instead of having to sell your tokens, you can use them as collateral to then buy more tokens in whatever project you want. As Deniz continues, “Many investors’ trading strategies involve continually accumulating cryptocurrency. Acquiring a loan can give a trader additional capital to further invest while keeping their current funds untouched.”

A question we often get is how will the MVP work in terms of the conditions borrowers will be required to meet, collateral levels, and so forth. Wilson, our COO says, “The main condition for borrowers will be having collateral. We will set minimum collateral levels to be 120% of what you’re looking to borrow initially to account for market volatility. Interest rates are dynamic based on a given pool’s utilization rate. We will also introduce special rates to PBX holders so they can borrow at a lower rate where possible.”

Another area people wonder about is liquidation as we often hear of leverage cascades causing the markets to plummet rapidly. Wilson covers this point too, “Borrowers will get notified at various checkpoints. When their collateral drops below 120% notifications will be sent out. It is mainly up to the user to track and trace what they owe as it’s in their best interests to close the debt without liquidations.”

Simon, our CTO adds, “Traders may be a little more familiar with stop losses rather than loan closeouts. In this regard, the closest concept to a stop-loss is the collateralization percentage. You will need to, at very minimum, have 120% collateral but the system will recommend keeping it above 150% where possible to stop liquidations in the event of cascading liquidations across the market and Paribus protocol”

Finally, in the crypto space in general there’s been an increased focus on the background of project members due to some dramatic instances of people having technical experience but lacking more fundamental business skills. Fortunately, at Paribus we’re blessed with a core team that not only understands the crypto space but also traditional finance and business.

As Deniz points out, “I worked in financial firms and understand the level of regulation and compliance required from the tech side for institutions. This is always in the back of my mind as we gear up towards Paribus Pro. The combination of software and business experience is vital for the specific crypto project we are creating at Paribus. Understanding the pitfalls and shortcomings of traditional finance from behind the scenes allows us to avoid these types of problems when building our product. Blockchain technology helps tremendously in designing a system that naturally overcomes many of the problems with the traditional finance sector.”