Investing in DeltaPrime
Loan: In finance, a loan is the transfer of money by one party to another with an agreement to pay it back.
In all types of loans, the lender is concerned about two things, the first of which is related to credit and the second to collateral.
- Is the borrower good enough to pay back the loan ↔ Credit
- What will happen if they don’t pay back ↔ Collateral
For credit lending to function smoothly, a precise evaluation system, legal framework, and developed financial literacy are necessary. Therefore, in societies where financial infrastructure is underdeveloped, credit lending often fails to operate effectively.
DeFi not only has less developed financial infrastructure compared to TradFi, but also faces difficulties in identifying users, making it even more challenging for credit lending to thrive. As a result, collateral-based lending has developed in DeFi, with over-collateralized loans, where the collateral amount exceeds the loan amount, becoming the predominant form.
In TradFi, loans serve as a major source of capital supply in the market, promoting economic growth and development. However, with over-collateralized loans occupying a large share in the DeFi market, a significant amount of capital has bonded as collateral, unable to generate additional value.
To overcome this limitation, various types of loans have been proposed. Among them, identity-based loans and prime brokerage-based loans have secured a significant TVL.
However, identity-based loans have the limitation of reduced accessibility due to the complex KYC procedures involved. Moreover, loans can sometimes be approved for individuals or institutions with no creditworthiness or poor repayment ability, even after going through KYC. This can pose a counterparty risk to the lender or depositor, who is the source of the loan funds.
Enter DeltaPrime
DeltaPrime is an investment platform that applies the prime brokerage model. It supports undercollateralized loans, making it capital efficient, and unlike identity-based loan platforms, loans can be obtained without going through complex KYC procedures. This is possible because DeltaPrime operates as a “closed-system”.
In DeltaPrime, the assets borrowed through a loan are not directly paid to the borrower’s (Investor in the diagram below) wallet. Instead, they are paid to a ‘prime brokerage account’ located inside of the DeltaPrime protocol. The borrower invests using the options supported by DeltaPrime, such as trading, liquidity mining, and staking, through this account.
The downside of structuring the protocol as a closed-system is that investors can only access the protocols and investment options supported by DeltaPrime (specific purpose). However, there is a simultaneous advantage of mitigating counterparty risk by limiting the protocols that investors can access.
DeltaPrime reduces counterparty risk by onboarding only protocols that have passed its own review (e.g., GMX, TraderJoe, etc.). Additionally, through partnerships with the protocols onboarded onto DeltaPrime, it offers exclusive benefits to users.
DeltaPrime ensures a strict liquidation system. Because the prime brokerage account exists within DeltaPrime’s closed-system, it can maintain strong control over the funds. This is different from overcollateralized loans or identity-based loans, where control over the loaned funds is lost once they are disbursed. The strict liquidation system safely protects the lender’s (Lender/Depositor) funds.
DeltaPrime is Prime
The prime brokerage sector has a strong network effect. Therefore, overcoming the cold start problem is crucial to the success or failure of a project, and DeltaPrime is excellently overcoming this and building a strong network effect.
Since its launch in January 2023, it has formed partnerships with 7 of the top 10 protocols in the Avalanche ecosystem within just three months and onboarded them onto DeltaPrime, surpassing TVL of $20M.
Various partnerships and integrations are very important as they are the key to overcoming the low composability problem, which is a limitation of the prime brokerage model.
As co-founders, Piotr, Kamil, and Gavin bring a wealth of knowledge to the industry. CEO Piotr has six years in software and web3 development, CTO Kamil has led IT teams for financial regulatory projects, and CBDO Gavin has over a decade of experience in communication. Their combined expertise provides a unique perspective on creating an excellent investment platform and understanding the challenges faced by DeFi protocols.
About nonce Classic
nonce Classic is a VC/accelerator borne out of Seoul’s largest Web3 hacker house. Backed by a strong alliance of builders and angels, nonce Classic lays out a bedrock for founders by providing a strong community of like-minded people
Website: https://nonceclassic.org/main
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Disclaimer: This article is for informational purposes only, not investment advice. Always consult with a professional for investment decisions. Information here, sourced from elsewhere, has not been independently verified by nonce Classic, and its accuracy isn’t guaranteed. The views expressed are the author’s and may not reflect those of others at nonce Classic. Opinions can change without notice.
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