All You Need to Know About Parallel Finance

The internet is made up of several individual parts that work together to cater to different needs. This is the same concept behind parachains, which involves several blockchains working together. The Polkadot network currently has a couple of projects on its platform.

One emerging project that aims to bring the world a step closer to the De-Fi ecosystem is Parallel Finance. This article will discuss what Parallel is and everything there is to know about it.

What is Parallel Finance?

Parallel Finance is a protocol built on the Polkadot network which boasts a plethora of De-Fi products within its ecosystem like Kusama, Moonbeam, Edgeware, Kilt Protocol, and many more. Parallel Finance aims to give users enough liquidity to compound their gains and enhance their funds’ utilization.

Parallel Finance was developed as a gateway for users to access DeFi easily with the main objective of bringing the concept to 1 billion people. To achieve this goal, the developing team is currently building on other networks like the Ethereum network.

The protocol aims to be the go-to lending and staking protocol on the Polkadot network and the first money market to aim for the staking economy. The network also plans to launch a parachain on Polkadot that is optimized for financial applications and would allow developers to build their own network and launch their own parachain through the Polkadot network.

History of Parallel Finance

Yubo Ruan developed parallel finance in April 2021 to improve liquidity and facilitate the worldwide adoption of De-Fi. Parallel Finance won Polkadot’s 4th parachain auction on December 17, 2021, and was officially launched a few months after.

The project was built on the Polkadot network and is the first decentralized Finance Protocol. Users can access the network by connecting their Clover or PolkadotJS wallets.

Parallel Finance gathered funding from three major investing rounds in 2021. In June, the protocol raised $2 million in a seed round; in August, it raised $22 million in the second round, and a third round was held, which saw investors such as Sequoia Capital, Futures Fund, and Shima Capital participate in the project.

How does Parallel Finance Work?

Parallel aims to be a parachain that allows anyone to develop apps in the ecosystem and launch their own parachains through the network. It also plans to extend its reach to networks outside its platform by offering different financial tools that would open a gateway into the world of De-Fi. To achieve this, the platform has equipped itself with certain tools, some of which include:

Supplying Tokens

Parallel’s lending protocol applies a pool-based method that aggregates the assets provided by the users. The lending protocol will consist of a USDT, DOT, and xDOT pool where various users can deposit their assets and eventually earn interest.

The market design allows it to stay liquid if the provided amount is partially borrowed. It also gives lenders enough liquidity and the chance to convert their assets into cash or earn interest.

The amount of interest earned greatly depends on the supply interest rate for the specific asset owned. The interest rate is derived by dividing the current interest rate by the total pool ownership of the users who contribute assets to the market.

Borrowing Tokens

On Parallel Finance, users are able to borrow with over-collateralized loans. Each borrowing market has its own variable interest rate obtained from how the assets are used in the market.

Users can borrow assets by depositing assets as collateral that is valued higher than the desired borrowed amount. The loan-to-value ratio of the specified market determines the borrowing limit of the market. Users can repay the borrowed assets or purchase collateral to raise their borrowing limits.

If, due to price fluctuations, the value of a user’s assets divided by the value of their outstanding borrowed amount becomes lower than the collateral ratio, their collateral becomes open to purchase at the current market price with a deduction termed liquidation deduction.

Parallel’s interest rate curve applies an advanced formula to ascertain the borrow interest rate based on utilization. Parallel has a smoother interest rate curve when utilization drops below 80%. This means that borrowers can expect a smooth upward growth as opposed to other curves that are sharp and lead to higher interest rates for the borrower. Subsequently, borrowers are exposed to a more user-friendly platform due to the smoother interest rate curve.

Liquidation

When there is a significant increase in the price of assets, the loan-to-value ratio of accounts on the platform will be reduced to limit systemic risks. To make this easier, Parallel has employed an oracle, a mechanism that reliably makes off-chain data available on-chain. Oracle must be able to feed assets as fast as possible, while accounts that are not healthy must be liquidated. This system is, however, limited by Ethereum’s throughput, gas fee, and liquidation calls, thereby raising the systemic risk.

As a solution, Parallel applies a liquidation method based on a Substrate Off-chain Worker. This method comprises three major parts: the Auto-liquidation Algorithm which helps clients make immediate decisions that raise the client’s margin deficiency, the On-Chain Liquidation Pool which helps it create liquidity faster, and Flash Liquidation.

Staking

Holders of assets can deposit their assets into parallel’s system account, and in return, they earn a voucher called xDOT. This voucher indicates ownership of the assets and access to the earnings generated from relay chain staking activities. Validators are selected by the Parallel Liquid staking mechanism through the list of users with a funded account.

In the credit industry, xDOT could be used as collateral. DOT and xDOT are usually of equal value before high-open markets are established. Parallel Finance proposes a funding pool subtracted from the total Staking Amount. This pool lets users with xDOT instantly redeem their funds.

The holder’s access to the pool is proportional to their daily xDOT holdings, and holders can redeem from the immediate pool only once daily.

Parallel Finance’s Main Features: Super App, Multi-chain Wallet and Liquid Staking

Parallel Finance aims to build the largest dApp protocol in the Polkadot ecosystem. The protocol, to achieve this, has equipped itself with certain features that include user-friendly and secure applications.

Super App

Parallel Finance has decided to have a one-stop shop for all things Decentralized Finance (De-Fi) related. The platform consists of different De-Fi services such as wallets, staking, crowd loans, cross-chain bridges, an automated market maker, yield farming, and boot.

This approach differs from most De-Fi platforms that look to become a household name for a particular line of service. This is possible for Parallel Finance due to their large team, meaning they can cover more grounds and work on several projects at a time.

Source: Parallel

Multi-chain Wallet

Parallel Finance is trying to build a non-custodial multi-chain wallet to increase users’ access to the De-Fi space. The multi-chain wallet serves as an entry point for users to allow them to secure their assets, then control and build them with the help of Parallel Finance’s De-Fi solutions.

Liquid Staking

This form of trading differs from the conventional form that requires users to lock up their funds for a certain period. Parallel offers a unique and highly effective form of staking called Liquid staking.

With Liquid stalking, once users have locked up an asset, they receive a derivative version called sDOT, which keeps them liquid and useful in the composable suite of dApps. The token derivative sDOT can also be used the same way users use the staked asset.

Liquid Crowdloan

Parachain auctions will still be able to use Parallel’s borrowing interface. The platform will make competitive rates available for projects that want to use parachain loans directly. Users seeking incentives from crowdloans are also welcome to use this service.

When users participate in Parallel crowdloans, they earn cDOT or cKSM derivative tokens, allowing them to redeem their locked DOT or KSM token in the parachain selected after the rental period.

While the coins are locked, the derivative tokens allow users to remain liquid during the rental period. The derivative tokens can be used in the same way tokens derived from staking sDOT or sKSM are used.

Money Market

Money markets play a vital role in Parallel Finance’s plan to revolutionize traditional finance. Parallel has equipped its platform with yield farming in addition to the platform’s primary lending and borrowing functions. Yield farming allows users to make use of their idle assets by giving them the option to borrow money by providing collateral in the market

Parallel’s money market is compatible with other products on their dApp suite. This lets users freely utilize their assets across different products however they wish. This boosts their leverage and the rate of asset utilization.

Automated Market Maker (AMM)

Parallel’s Automated Market Maker, also called Dynamic Swap, was created for users to trade autonomously and carry out non-custodial trades. AMA removes the need for centralized third parties like crypto exchanges and allows users to trade assets without depending on such parties.

Users can access this feature without creating an account or going through any KYC procedure. AMM possesses an automated liquidity protocol governed by a “constant product” formula identical to that of Uniswap V2 that allows users to provide liquidity and value equal to the value of the underlying DOT/KSM token.

PARA Token

This is the native token of Parallel Finance. It is shared among core actors and partnerships in the ecosystem. Asides from being the native token, it also serves numerous purposes in the platform. Some include:

• Protocol Governance: PARA token holders will be granted the ability to vote on the management and administrative decisions of Finance Parallel.
• Transaction Fees: PARA will serve to satisfy network fees on the platform. It will be needed to carry out transactions like staking, lending, borrowing, crowd loans, trading, and other functions.
• Network Utility and Incentive: the token will also be used to incentivize collators and validators, which is a major mechanism behind the network.

PARA Tokenomics

The Para token will be distributed to the following members of the ecosystem in the following ways:

• 20% will be distributed to team members and advisors;
• 15% will be used for crowdloan;
• Seed investors will be given 5% of the total token supply;
• 5% is allocated to insurance funds;
• Private Investors will be given 15% of the total token supply;
• 15% of the total token supply is allocated to the Ecosystem and further development of the ecosystem;
• 25% will be used for liquidity mining.

Is Parallel Finance a Good Investment?

Parallel Finance is introducing a new service to the growing Polkadot ecosystem. It has already amassed a ton of funding and backing from popular brands.

It is bound to keep growing and could become one of the most important parachains in the Polkadot ecosystem with its strong backing and well-laid-out plans. Its lending and staking are bound to increase its popularity, leading it to reach its full potential.

How to Buy PARA

You can obtain PARA tokens by using the various crypto exchanges out there. Users only have to complete the KYC authentication, then review the procedure to buy PARA on the spot or in future markets once they have added funds to their account.