Pine vs Others
Fixed vs Floating
Loans on Pine are fixed rate term loans instead of flexible continuous floating rate loans.
All loans are structured as term loans on the Pine Protocol. This means that all loans on Pine have a fixed duration, e.g. 7 days. Lenders can offer multiple loan durations when setting up a lending pool for a specific NFT collection. Furthermore, lenders can also set different terms, i.e. LTV and interest rates, for different loan durations in order to mitigate the risk.
The term loan structure makes it a lot easier for borrowers to manage their loan positions as everything, such as repayment date, total interest payable, etc are known and agreed upon on the onset when the loan is initiated. Under normal circumstances, borrowers face no liquidation risk as long as they repay or extend the loans before the end of the loan term.
One major drawback of continuous loan in Emerging Market is the unpredictability of cash flow and frequent funding squeeze where short-term rates spike to the roof. This creates a huge risk for borrowers as the effective interest rate might be a lot higher than expected, and a funding squeeze tends to happen at the same time as market distress where the underlying plummets. Imagine if you are expecting an average of 15% borrowing rate but it turns out to be 100% (7x) the moment you are having difficulty repaying the loan when everything is selling off.
Segregated Pool vs Commingled Pool
The money you lent or borrowed doesn’t come from the Protocol Pool.
Every lender sets up their own segregated lending pool on the Pine protocol instead of participating in commingled lending pools alongside with multiple depositors. This gives each lender flexibility to choose the types of collateral they would like to lend against and set their own terms. When a loan position defaults, the ownership of the collateral is transferred to the lender. There is no need for forced selling of the collateral as every loan and the underlying collateral is mapped to only one lender. Lenders face less compliance and regulatory risk with the segregated pool structure as compared to a public lending pool where funds from multiple depositors are commingled.
There will be no risk of bank-run under this pool structure together with our term loan design. The protocol assumes no market risks and no mismatch of cash flows and therefore the situation where the protocol running out of funds to service withdrawal is impossible to happen.
Nothing besides a lender’s own written loans can affect his funding pools and this allows precise control of risk exposure to different NFT collections.
Check out our lenders portal (https://app.pine.loans/lending/pools) and open your own lending pool now. If you have any questions, join our Discord channel (discord.gg/pineloans) and speak with our team.
Don’t forget to follow us on Twitter: https://twitter.com/PineLoans
Full Whitepaper: https://docs.pine.loans/
