Short About: Parallel Finance & Parallel Heiko
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What is Parallel Finance?
Parallel finance represents three decentralized Polkadot-powered protocols designed to increase liquidity and acceptance on the Polkadot network:
- Decentralized Money Market Protocol, which facilitates the lending and borrowing process;
- Staking Derivative Protocol, which tokenizes native DOT tokens;
- Uncollateralized financing market designed to assist teams in raising funds for parachain auctions.
The platform provides a new financial primitive for staked DOT, allowing users to earn income while maintaining a liquid asset that is not subject to lockups or lengthy unlock periods.
xDOT will be the name given to this staked DOT financial primitive. Borrowers will be able to acquire loans against their DOT denominated in stable coins without selling their DOT, while lenders will be able to make interest income on their xDOT.
How it works
The Parallel lending protocol employs a pool-based method that aggregates each user’s provided assets. This lending protocol will include a DOT, xDOT, and USDT pool where users may deposit their assets and receive interest.
This market is liquid, and as long as the whole provided amount is not borrowed, it provides lenders with liquidity and the opportunity to convert their given asset into cash or receive their earned interest.
Balances in this money market earn interest based on the supply interest rate specific to that asset. The supply interest rate is derived by taking the current interest rate and dividing it by the pool ownership of the current users contributing assets to that market.
Parallel helps users to borrow from the protocol with over-collateralized loans. Each borrow market has a variable interest rate that is determined by how the assets in that market are used.
It is needed to deposit or approve an asset or assets as collateral that is/are greater than the intended outstanding borrowed amount in order to borrow an asset, so setting the borrow. The borrow limit is determined by the Loan to Value ratio in that market. Users can either refund a borrowed asset or deposit more collateral to enhance their borrowing limit.
If the value of a user’s supplied assets divided by the value of their outstanding borrowed amount falls below the collateral ratio as prices vary, the user’s collateral becomes available for purchase at the current market price minus a liquidation discount.
When prices move significantly, the health factor of the accounts on Parallel will most likely decrease in order to reduce systemic risk. Furthermore, an oracle (a mechanism that brings off-chain data on-chain, in a credible and decentralized fashion) must be able to feed prices as rapidly as feasible, while unhealthy accounts must be liquidated. However, due to Ethereum’s throughput and gas fee, liquidation calls may be delayed, increasing systemic risk.
Parallel presents a liquidation method based on a Substrate Off-chain Worker. It is made up of three major parts: the Auto-liquidation Algorithm, the On-Chain Liquidation Pool, and Flash Liquidation.
Holders deposit their staked assets into Parallel’s system account in exchange for a voucher (aka, xDOT), which indicates ownership of the staked assets and distributes earnings from relay chain staking activities. Parallel’s liquid staking mechanism then chooses validators from among those who have a funded system account. In the credit industry, xDOT can potentially be used as collateral. Before there are high-quality open markets, the price of xDOT is the same as that of DOT.
Parallel protocol proposes a funding pool that is subtracted from the totalStakingAmout, which allows users with xDOT to instantly redeem the funds. The quota accessible to each holder is proportional to the xDOT holdings each day, and holders can only redeem from the immediate pool once daily.
PARA Token is the native token of Parallel Finance on Polkadot Deployment, dispersed across ecosystem key actors and partnerships.
PARA token holders have voting rights as well as the power to propose governance actions, referendums, network upgrades, council elections, and other parameter changes.
PARA is a native fee token that is essential to carry out the protocol’s functions and security. The native token is also used to encourage collators and validators, which are the mechanisms that run the network’s decentralized node infrastructure.
Staking and Security
PARA token is also used to hedge risks, motivate rewards, and distribute profits.
Validators will be encouraged to buy PARA in order to be whitelisted in the node evaluation schema/algorithm. The more PARA they have, the more likely it is that they will be nominated by Parallel stakeholders.
PARA will be utilized as a token incentive for Parallel users that stake and lend their tokens.
What is Heiko?
Heiko Finance is the sister network to Parallel and the parachain that will be released on the Kusama blockchain, similar to the relationship between Polkadot and its “canary network,” Kusama. Its main purpose is to create a decentralized future in which the community may boost capital efficiency, security, and accessibility through the leverage staking and auction lending platform.
As it is launched, Heiko will provide liquid staking on Kusama. Users will be able to compound their KSM investment more effectively than ever before using Heiko’s lending interface, with low risk. Leverage staking allows you to lend against your staked assets while earning interest from both staking and lending. Furthermore, when Heiko gets a user’s KSM, it stakes it to the network by algorithmically nominating the most trusted nodes on the user’s behalf.
Parachain auctions provide users with early liquidity through incentives such as the HKO granted to Heiko crowdloan participants. The auction lending module in Heiko will magnify this dynamic by allowing Heiko users to lend their DOT and KSM to auction participants in exchange for a set or floating interest rate and a percentage of future equity defined by the project borrowing. If the borrowers win their parachain auctions, they pay their interest rate on the borrowed coins, which are locked for a set length of time, often between six months and two years. If they lose, customers have the option of extending their loan until the next parachain auction or returning it. When the parachain lease period expires, the coins will be unlocked and returned to their lenders. By introducing this service on Kusama, Heiko and Parallel will gain the go-to-market brand identification as the official auction lending platform, which will attract leaseholders launching on Polkadot.
Parallel Heiko’s native platform token is Heiko ($HKO). It is required to carry out the protocol’s functions and security.
HKO token has a total supply of one billion. Parallel-Heiko will almost certainly be able to offer the most generous liquidity mining incentive of any project on the Polkadot ecosystem, both to developers building on Parallel-Heiko and to users providing liquidity. Furthermore, an allocation to the insurance pool is reserved to prevent abrupt swings in market pricing and liquidation risks in the DeFi marketplaces. The project’s protocol will be able to cover users’ losses with an insurance pool, giving new users confidence to stake in the decentralized, non-custodial staking pools.
Heiko is allocated according to the following structure:
Up to 5% will be divided among all contributors and distributed according to a linear vesting schedule. The crowdloan contribution is soft capped at 150k KSM (with a hard cap of 200.1k KSM) and will be allocated as rewards and bonuses at 5% of the total supply (50M HKO tokens). A minimum guarantee of 200 HEIKO tokens per KSM given is required.
The tokens will be vested in a linear fashion over a one-year period. This means that a percentage of HKO prizes will be unlocked with each block, and the user can claim them at any time. Because there is no cliff in crowdloan vesting, the distribution will take place evenly every day and month.
- Holders of HKO tokens have voting rights as well as the capacity to propose governance actions, referenda, network improvements, council elections, and other parameter changes.
- HKO is a native fee token that is essential to carry out the protocol’s functions and security. The native token is used to reward collators and validators, which are the mechanisms that run the network’s decentralized node infrastructure.
- The HKO token is used to manage risks, motivate rewards, and distribute gains. HKO token governance determines the insurance settings in the event of a slash.
- HKO will be burned when a fee is paid on the platform. Money market costs, staking/unstaking fees, transaction fees, and any fees in the future fixed-rate products are all included in these fees.
- HKO will be added as a reward for Heiko users who bet, lend, and borrow.
- Validators will be rewarded for maintaining HKO in order to be whitelisted in the node evaluation schema/algorithm. The more HKO they have, the more likely it is that they will be nominated by stakers.