Decentralized brokerage protocol aims to unite DEXs and lending in a new TradeFi ecosystem
DeFi (decentralized finance) lending has proven itself. Eliminating the middleman in this type of financial transaction can be done in a way that benefits both parties to the transaction. In practice, this means lenders can bypass the bank and increase their income, and borrowers can access the funds they need, even if they don’t meet the intermediary’s criteria. However, the industry is still young and requires additional applications before it is fully competitive with the traditional offerings available to the consumer today.
The fact is, the world is increasingly overwhelmed by tokenization, and the industry is already preparing for a future where more assets will have a digital counterpart. Therefore, it is only a matter of time before commerce itself becomes largely decentralized. Therefore, use cases such as margin (or leverage) trading, common in traditional finance, need a decentralized counterpart.
In margin trading, debt (or debt assets) can be used by an investor to execute larger trades. With this type of investment, some level of client protection is needed to protect the lender. Since blockchain technology is anonymous, the same level of knowledge of your customer is not maintained.
The solution definition looks at a lender’s ability to provide liquidity and a trader’s ability to use the platform to open leveraged trading positions. To make it a reality, Primex Finance defined a dynamic risk profiling solution based on historical on-chain trading data that allows lenders to provide liquidity and traders to use it in margin trading positions.
Address industry-wide concerns
To provide users with the optimal solution, the protocol is turning to several key features to differentiate itself from current market offerings.
Market fragmentation and the limited number of assets available on centralized exchanges are common in the industry today, two problems solved with the provision of cross-DEX trading, which opens up the number of leveraged positions in which users can engage. Since the protocol is not limited to an exchange, it instead considers available liquidity among other factors.
Traders can also participate in yield farming opportunities backed by margin trading performance, a direct result of profitable trading producing higher returns that can be shared, also increasing lender revenue.
Providing an opportunity for traders is the elimination of collateral requirements when opening a position. Instead, traders only need to lock the deposit, without requiring a transfer to an external wallet. Upon liquidation, the locked assets are then transferred to the full value of the locked protocol. Each trader then interacts with the DEX through a smart contract rather than their personal wallet.
Additional Trader Protection is an AI-based merchant scoring solution first made available with the second version of the protocol. The protocol will assess traders continuously, scoring each in an available bucket and offering potential opportunities to salvage their position if they are able to survive high volatility.
Other considerations come down to risk management on different trading pairs, other traders, and assets. The concern is addressed by the ability of lenders to diversify their risk across multiple assets in what is known as a ‘risk class’. A risk slice is a smart contract with a specified set of community-defined trading rules.
Meeting with a supportive community
In reviewing the Primex Finance project, Rennick Palley, Chief Investment Officer of Stratos Technologies Shares,
“Primex is a game-changer for those looking to manage a leveraged portfolio without going through a centralized exchange or collateralized lending protocol. Primex replaces many of the capabilities of tradefi, prime brokers, but in a way that is composable with other protocols, especially DEXs and in line with DeFi philosophy.
In light of this support, the growing Primex Finance community can expect the team’s prototype launch in Q1 2022, just one step in an overarching goal of eventually bridging the gap between traditional financial services and DeFi. . The belief is that by making these offerings mainstream, Primex can open up financing to everyone, no matter who they are or what they do.
Warning. Cointelegraph does not endorse any content or product on this page. Although we aim to provide you with all important information we may obtain, readers should do their own research before taking any action related to the company and take full responsibility for their decisions, and this article cannot no longer be considered as investment advice.