The Perfect Balance: How Parallel Combines Lending and Staking
Parallel is built to scale a variety of different dilemmas in DeFi markets, like the dilemma between staking and lending in the case of margin staking, and the dilemma between lending and voting in the case of parachain auction lending. More generally, this translates to the idea of eliminating opportunity costs for the user, which may scale a variety of different markets. The collection of these things makes it difficult to compare Parallel to other projects, because Parallel would more aptly compare itself to unlike things. That said, recognizing the unstructured or under-structured gaps in the market can give users an idea of what might have been the rationale behind launching Parallel in the first place.
Margin Staking
Parallel’s primary offering is margin staking, which is actually quite revelatory when you consider how simple it is. If you’ve read Tarun Chitra’s seminal works on competitive equilibria, you know that there is inherently competition between staking and lending [1]. But, if you manage the user’s stake like Parallel does, you can make these two kinds of yield collaborative. While there are projects that very efficiently allow users to stay liquid while they stake, there haven’t been any projects to allow users to borrow against their stake natively. When you borrow against your stake natively, this creates a healthy kind of competition between lending and staking markets, which can actually increase the lending yield for the users, and increase capital efficiency. In a market that is competitive for yield, users will choose to stake if the staking yields are higher, and borrow if borrowing yields are higher. As users reach the desired levels of leverage from the same pool of tokens, the lending yield increases and it is added to the staking yield.
Native Blockchain
Ethereum continues to be the most used blockchain by longshot, with more than 5x as many transactions per day than Bitcoin [2]. On top of that, the median transaction fee on Ethereum is already three times that of Bitcoin, and it may become more expensive as the network gets more crowded. Recently, Vitalik Buterin wrote that while layer 2 solutions are suitable for now, DeFi on Ethereum will become untenable after it reaches “layer 6” [3]. While Buterin may have made this remark partially in jest, it is true that scaling problems for lending projects built on Ethereum and some EVM-compatible chains could become zero sum in the future. Parallel’s future likely won’t be contingent on zero sum possibilities, because it will be available on many different blockchains. As distinct from many lending projects, Parallel will actually have its own blockchain on Polkadot and Kusama, even as it plans to service the Ethereum blockchain as well. This means that it can adapt the conditions of its use to the very specific needs of the Parallel app, and grow as the network grows. In fact, other projects will be able to build on top of Parallel’s blockchain, similar to the way that other projects build on top of Ethereum.
Dynamic AMM
Parallel has created a new way of transacting with interest-bearing tokens. For the first time, users will be able to swap tokens like xKSM, pKSM, and cTokens from Compound with little to no slippage. Having low-slippage swaps for these tokens enables users to swap out of staking positions that would normally take many days to unbond. It also makes the leverage engine on the money market much more efficient. Previously, there wasn’t an effective way for money markets to swap interest-bearing tokens natively, and without slippage. Therefore, attaining leverage from a money market was quite cumbersome, and very costly. Now users can cultivate leverage with little to no slippage, and earn more yield. To elaborate, Parallel’s dynamic AMM will enable users to short or long interest-bearing tokens with leverage from different borrowing positions on Parallel. One intuitive thing a user might do would be to leverage long on interest-bearing assets and short the corresponding non-interest-bearing tokens. For instance, if I wanted to collect lending yield on interest-bearing tokens, I would swap my principle for an interest-bearing token like xKSM with almost no slippage, borrow xKSM, and repeat until I reach the desired risk profile of leverage. In this set up, a user’s collateral size will continue to grow and help prevent liquidation from accrued borrowing interest.
References
- https://arxiv.org/abs/2001.00919;
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3629988 - https://blockchair.com/compare
- https://cryptobriefing.com/ethereum-has-expand-beyond-defi-vitalik-buterin/
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Disclaimer:
This article contains forecasts, projections, goals, plans, and other forward-looking statements regarding Parallel’s financial results and other data. Such forward-looking statements are based on Parallel’s assumptions, estimates, outlook, and other judgments made in light of information available at the time of preparation of such statements and involve both known and unknown risks and uncertainties. Accordingly, plans, goals, and other statements may not be realized as described, and actual financial results, success/failure or progress of development, and other projections may differ materially from those presented herein. Even when subsequent changes in conditions or other circumstances make it preferable to update or revise forecasts, plans, or other forward-looking statements, Parallel disclaims any obligation to update or revise this article. Information concerning risk or returns (including features under development) contained herein is not intended as advertising or as financial advice.
