Three Minutes to Understand Pledge: A Fixed Rate Lending Protocol Supporting Financial NFTs

Written by: Funky

Despite the rapid growth of DeFi (Decentralized Finance) over the past year compared to traditional financial markets and centralized cryptocurrency financial markets (CeFi), its scale is still minimal (according to DeBank statistics, the total locked value reached a historical peak of $133.9 billion on May 9, 2021).

However, based on the characteristics of blockchain as a publicly verifiable distributed ledger technology, DeFi businesses can operate without relying on any centralized institutions, executing automatically through smart contracts, and having transaction records on-chain that cannot be tampered with. This disruptive innovation greatly reduces the cost of establishing trust in traditional finance, enhances efficiency, and eliminates issues such as opaque manipulation and single points of failure.

Nevertheless, from MakerDAO to Compound and Aave, the lending market that supports half of DeFi is extremely homogeneous. Major lending protocols primarily offer "variable interest rates," mainly serving cryptocurrency traders focused on short-term intraday transactions, lacking the most common fixed-rate and fixed-term financing products and services found in traditional financing markets.

This hinders DeFi from extending and penetrating into larger financial markets: as of the second quarter of 2020, the United States was the largest traditional fixed income market in the world, accounting for about 40.0% of the global $114 trillion in circulating securities, totaling $46 trillion.

Recently, Pledge, a fixed-rate lending protocol led by Danhua Capital (DHVC) with a completed funding of $3 million, aims to fill this market gap by focusing on meeting long-term financing needs in real-world applications, creating a crypto asset lending platform primarily serving crypto asset holders who wish to diversify their portfolios using non-crypto assets (such as real estate) while avoiding the friction of adjusting existing positions.

Crypto asset holders in need of fiat liquidity can collateralize their crypto assets on the Pledge platform in exchange for stablecoins. For borrowers, they can deposit cryptocurrencies like Bitcoin as collateral on the protocol in exchange for stable and predictable stablecoin liquidity, which can be converted into fiat currency for investments in non-crypto assets like real estate.

For lenders or investors, they can lock stablecoins in liquidity pools to provide liquidity and retrieve their principal along with fixed returns when loans mature.

Pledge's target users are non-trader users seeking long-term, fixed-rate loans for investment diversification. Pledge enables users to borrow and lend at a fixed rate within a predetermined period. By reducing the risks associated with interest rate fluctuations, Pledge thus creates a decentralized lending market, accelerating the application and popularization of DeFi in people's daily economic and financial activities.

As a cross-chain DeFi protocol based on financial NFTs, Pledge encompasses lending and derivatives across many major public chains, aiming to establish an algorithmically supported fixed-rate currency market. Currently, Pledge is built on the Binance Smart Chain, aiming to leverage the advantages of BSC over Ethereum in terms of block time and gas limits for fast, low-cost transactions, while accessing a deep network of wrapped tokens and liquidity.

On the Pledge platform, there are three types of users: borrowers, lenders, and liquidity providers. Pledge utilizes pTokens to facilitate fixed-rate, fixed-term crypto asset lending. pTokens provide Pledge users with a simple way to commit to transferring value at a future point in time.

The trading of pTokens allows users to transfer present value to the future from the perspective of the time value of money. To facilitate lending and liquidation, these pTokens can be transferred, representing cash flows of specified positive (receiving rights) or negative (paying rights) items due at a certain maturity.

Pledge offers the PLGR token in exchange based on the supply and demand of certain cryptocurrencies, allowing users to easily exchange the time value between collateralized digital assets and stablecoins with one click.

When users hold PLGR, they receive a fixed interest rate known as the Annual Percentage Yield (APY), with earnings accumulating in each block, and borrowers can pay predictable fixed interest. Unlike other DeFi lending protocols, Pledge can create liquidity pools with different maturities for specific crypto assets, characterized by fixed lending terms for each loan.

Pledge also provides a set of decentralized interest rate swap contracts, aiming to make it an important component of the fixed income currency market. These derivative smart contracts typically convert fixed-rate interest payments into floating-rate interest payments, serving as a significant tool for DeFi investors to hedge, speculate, and manage cross-chain or on-chain risks.

The Pledge protocol fully supports financial NFTs, including insurance and bonds, a basket of tokens, and tokenized real-world financial assets. In centralized exchanges, interest rate swaps have an annual trading volume of $700 trillion, which will become the largest use case for Pledge's NFT technology.

Pledge is committed to combining cross-chain NFT circulation with multi-asset trading, simplifying the transfer process, expanding the current NFT market, and accelerating the valuation and pricing of NFTs by providing trading board functionalities for users. Pledge supports programmability both on-chain and across chains, allowing developers to control the execution of their decentralized applications on one chain while securely managing data across chains.

Last year, Compound introduced governance tokens, igniting liquidity mining and marking the summer of DeFi, with almost every DeFi protocol launching an economic model design for their native platform tokens, and Pledge is no exception. PLGR, as the governance token of the Pledge platform, totals 3 billion tokens, aimed at guiding the long-term sustainability and growth of the Pledge protocol.

At the genesis, 10,000 PLGR tokens will be minted to incentivize community participation. The PLGR token injects momentum into Pledge governance and can be staked in on-chain voting to improve proposals. Governance functions include:

• Adding new cryptocurrencies or stablecoins to the protocol
• Adjusting variable interest rates across all markets
• Setting fixed rates for each market
• Adding new markets for different maturities
• Voting on improvements or proposals for the protocol
• Delegating the protocol reserve allocation timetable

To enhance initial liquidity, a certain number of PLGR tokens will be allocated to all borrowers as rewards, proportional to the debt amount borrowed by each account. Similarly, a certain number of PLGR tokens will also be allocated to lenders and liquidity providers as rewards, proportional to the liquidity amount provided by each account.

Pledge is built by an all-star team from Stanford, with core members having extensive experience and resources in blockchain, real estate, financial services, and cryptocurrency. CEO Tony Y. Chan was an original contributor to the Windows 95 system and subsequently spent 10 years in the real estate sector.

Tony discovered that some of his clients were forced to liquidate their cryptocurrencies to acquire off-chain assets like real estate, prompting him to establish Pledge, allowing everyone to borrow/lend funds and use them freely, which became his original intention. Chief Technology Officer Michael Ren was the former CTO of one of Hong Kong's largest P2P lending platforms, with an annual transaction volume exceeding $10 billion, and has rich experience in traditional finance.

Notable Stanford professor and core inventor of Prism, Dr. David Tse, along with Gary Lablanc, one of the first professors to teach blockchain courses at the University of California, Berkeley, and Stanford, current BNP Paribas director Terry Tse, and former Vice President of East West Bank Nicole Chang serve as advisors to Pledge, providing support for its strategic product innovation.

Currently, Pledge has partnered with globally renowned asset management company OceanIQ Capital and U.S. real estate brokerage NAREIG International to provide cryptocurrency lending services for OceanIQ Capital users, allowing them to diversify their crypto investment portfolios into other supported asset classes, enabling users to use their crypto assets as collateral to acquire real estate in the U.S. without having to sell their cryptocurrency investment portfolios.

The recently raised funds will also be used to support Pledge in becoming a mainstream crypto asset lending platform and achieving the tokenization of real-world financial assets.