TM Rating: 82% I
February 15th, 2022
Parallel Finance is a Decentralized Money Market Protocol that offers lending, staking, and borrowing in the Polkadot ecosystem. The suite of solutions the protocol offers includes a decentralized money market protocol that offers lending and borrowing, a staking derivative protocol that tokenizes native DOT tokens, and an under collateralized lending market built to help teams form capital for parachain auctions. Similar to the relationship between Polkadot and its “canary network” Kusama, Heiko Finance is the sister network to Parallel. It therefore offers the same range of solutions as Parallel, but on the Kusama network.
Using Parallel, depositors can lend and stake simultaneously to earn double yield on their staked coins, and borrowers can collateralize to borrow. This feature is referred to as “leverage staking” as users can lever up against their staking collateral to increase their yield overall. In addition, when a user’s DOT and KSM are staked through Parallel, a reputation-determining algorithm is applied which maximizes staking yield on behalf of the user.
In the future, projects and individual users will also be able to source their auction loans through Parallel’s interface–a feature called “auction loans.” This feature will give users the ability to stay liquid while their DOT/KSM is locked in parachains, and it will give projects direct access to the liquidity they need to win parachain auctions.
Parallel introduces a decentralized lending protocol with a ﬂoating interest rate determined by the underlying assets’ supply and demand. The staking protocol also provides liquidity to bonding assets in the Polkadot ecosystem. Parallel balances the competition between staking and DeFi rewards to solve the usability issue for the representation token (xDOT).
Parallel began less than a year ago in April 2021 and secured funding for a valuation of $250 million in November 2021 from investors including Sequoia Capital, Polychain Capital, Peter Thiel’s Founders Fund, and LightSpeed Venture. They have also reached over 100,000 community members across all global channels, and grown to 62 team members, making it both one of the biggest teams and one of the largest communities of the Polkadot ecosystem.
On the technical side, Parallel is a well designed project led by experienced engineers, which explains its rapid adoption among the growing Polkadot ecosystem. The main uncertainty related to its architecture is currently related to its oracle solution. In order to secure the lending protocol, Parallel is required to have accurate and real-time market prices for different assets. An oracle has been introduced as a mechanism that brings off-chain data on-chain, in a credible and decentralized fashion.
For now, most mature decentralized oracle solutions are designed for Ethereum, and regarding Polkadot ecosystem, there is already some early work to provide the similar kind of solutions by the Substrate community, but most are far from production-ready and not as well as established as Chainlink can for example be for Ethereum and more broadly EVM ecosystem. Parallel designed a semi-decentralized way to tackle the current situation.
For each asset, prices are fetched from the mainstream exchanges and reduced into one with a median strategy, and during each block, authorized members, elected by the governance of Parallel, can submit the price on-chain. While it introduces a potential single point of failure for the protocol, the team architecture seems like a robust solution, while waiting for a battle-tested fully decentralized oracle solution.