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Investors support the new DeFi protocol

Finance on blockchains is constantly being refined, with the aim of really taking on the banks. Prime Protocol, a decentralized prime broker that will work on multiple blockchains at once, raised $2.75 million in a round co-led by Arrington, Jump, and Framework, with participation from multiple angels.

why is it important: As crypto-powered credit services become more sophisticated, this should ultimately putting pressure on the traditional banking system to reduce fees for users.

  • “I think the infrastructure we’re building right now will be key to replacing a lot of legacy financial systems that could benefit from decentralization,” Colton Conley, founder of Prime Protocol, told Axios in an interview.
  • Conley sees a future where tokens that represent real-world assets can come on-chain. When that happens, decentralized finance (DeFi) will begin to encroach on traditional banking territory.

Catch up fast: Basic borrowing on blockchains is surprisingly easy, but credit is fragmenting as users start using multiple chains.

  • It’s a bit like a company owning a lot of property, but only being allowed to spend borrowed money on a particular property in the same condition as the secured property.
  • Prime Protocol aims to refine DeFi a bit more, but crypto lending still has a long way to go before it can match the liquidity and flexibility of traditional finance.

Between the lines: Prime Protocol is a DeFi protocol that works, at its core, like the most well-known DeFi protocol of all: MakerDAO.

  • Users will deposit assets and then be able to take out loans against them, with the ability to leverage a wallet up to 11x.
  • These loans will actually create a new stablecoin called PUSD. If that sounds strange, that’s exactly how one of the oldest stablecoins, DAI, also works. Each DAI represents a debt against the guarantee entrusted to MakerDAO.

Stable coins are designed so they follow the price of government-issued silver, usually the dollar. Most other cryptocurrencies are notoriously volatile.

  • The PUSD will be a secured stablecoin, not a fiat like Tether or USD Coin, the two most popular stablecoins.
  • Conley claims that the monetary policy of PUSD will be more dynamic than previous collateralized stablecoins (such as DAI, the fifth largest). Its lending rates and offering will change as needed, under rules controlled by PRIME holders.

The context: Prime Protocol is part of a larger trend in crypto to eliminate all centralized products.

  • Most cryptocurrencies that borrow money do so now to increase their transactions. For most of the crypto’s first decade of existence, these trades all had to take place on centralized exchanges, such as Binance.
  • But a decentralized exchange called Uniswap proved its place in the market around the beginning of 2019. Decentralized exchanges are basically robots on the internet that operate daily without human intervention. They are booming.

Yes, but: One advantage for centralized exchanges, however, has been easy access to credit to trade on margin. Prime Protocol aims to make margin trading much easier for users who wish to remain decentralized.

Details: Prime Protocol brings two key changes for merchants.

  • First, borrowing on assets from one channel to spend on another requires many tedious steps and applications. With Prime, a user will be able to deposit on one channel and borrow on any other that also has Prime running, all with one product.
  • Second, all collateral deposited in Prime will count as one large line of credit. Usually, blockchain credit projects create a separate line of credit for each asset deposited by a user. With Prime, users can deposit many different types of assets and borrow against all of them at once.

The other side: A lot of entrepreneurs want to be on multiple blockchains at once right now.

  • In fact, yesterday the largest DeFi money market, Aave, released its v3, which includes portals. The portals will also allow users to deposit on one channel and borrow on another, Aave founder Stani Kulechov confirmed to Axios.
  • Aave is a money market, however, so it can only lend assets that others have deposited. “Because we issue our own stablecoin, we don’t really have a cost of capital,” Conley said.
  • Similarly, in February, Primex Finance, which also wants to improve margin trading for users of decentralized exchanges, announced a $5.7 million funding round led by CoinFund and Stratos Technologies. Multi-chain loans are also part of its roadmap.

And after: Prime Protocol will launch its testnet this summer with a mainnet launch shortly after. It will operate using a star model where all of its actions on various blockchains will be verified with a chain of fast and cheap smart contracts.

  • Conley is not yet disclosing which of these chains he will use, but, based on these terms, it’s a safe bet to rule out Ethereum, the largest and best-known smart contract blockchain.

Participant in early DeFi protocols is still risky, but those who do in the early days of Prime will be rewarded with NFT airdrops and liquidity provider incentives, Conley confirmed.

  • It is also working on promotions through other blockchains as it expands its footprint to more and more chains.
  • Investors bought shares which will then be converted into the protocol’s governance token, most likely named PRIME. Early entrants will likely also benefit from great deals on early PRIME distributions.

At the end of the line : “What DeFi is doing is cutting out the middleman from a lot of big, bloated financial institutions that basically control how a lot of your finances work,” Conley said.

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