DeFi (Decentralized Finance) Lending has proven its worth. The middleman can be eliminated in this type of financial transaction in a way that benefits both partners in the transaction. In practical terms, this means that lenders can bypass the bank and increase their income, and borrowers can access the funds they need even if they are not qualified to act as an intermediary. However, the industry is still young and requires additional applications before it can fully compete with the traditional offerings available to the consumer today.
The truth is that the world is increasingly winning over coding, and the industry is already preparing for a future in which more assets will have a digital counterpart. Thus, it is only a matter of time before real trading becomes largely decentralized. Therefore, use cases such as margin (or leverage) common in traditional finance require a decentralized counterparty.
In margin trading, an investor can use debt (or borrowed assets) to make larger trades. With this type of investment, a certain level of customer protection is required to protect the lender. Since blockchain technology is anonymous, the same level of knowledge about your customer is not maintained.
The decision takes into account the ability of the lender to provide liquidity and the ability of the trader to use the platform to open pledged trading positions. To achieve this, Primex Finance has defined a dynamic risk identification solution based on historical on-chain trading data that allows lenders to provide liquidity and traders to tap into margin trading positions.
Problem Solving Across Industry
To provide users with an optimal solution, the protocol takes into account several key features that distinguish it from current market offerings.
Market segmentation and a limited number of assets available on centralized exchanges are common in the industry today, and are two issues that are addressed by offering trading via DEX, allowing a number of leveraged positions that users can participate in. Because the protocol is not limited to a single exchange, it considers available liquidity among other factors.
Traders can also participate in return farming opportunities backed by margin trading, which is a direct result of profitable trading that provides higher shareable profits as well as increased returns to creditors.
Empowering traders is to remove the security requirement when opening a position. Instead, merchants just need to block the deposit and not require the transfer to an external wallet. When the settlement occurs, the frozen assets are transferred to the total cost of minutes withheld. Then each trader interacts with DEX through a smart contract and not through their personal wallet.
Extra Trader Protection is an AI-based trader evaluation solution that was first made available in the second version of the protocol. The protocol will evaluate traders on an ongoing basis, rank each of them in the available basket and present potential opportunities to maintain their position if they can withstand high volatility.
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Other considerations stem from risk management for different trading pairs, traders, and other assets. The problem is solved by the possibility for lenders to diversify their risk across many assets in the so-called ‘risk basket’. A risk basket is a smart contract with a specific set of trading rules defined by the community.
Get to know the supportive community
In an overview of the Primex Finance project, Rennick Pally, Director of Investments at Stratos Technologies, shares the following:
“Prix is a game-changing tool for those who want to manage their mortgage portfolio without going through a central exchange or collateral lending protocol. Primex replaces many of the features of tradefi, major brokers, but in a way that is compatible with other protocols, especially DEX, and in line with with the DeFi philosophy.”
In light of this support, the growing Primex Finance community can expect to launch a prototype team in the first quarter of 2022, a small step toward the shared goal of finally building a bridge between traditional financial services and DeFi. It’s believed that by making these deals huge, Primex can unlock financing for anyone, no matter who they are or what they’re doing.