Parallel Finance has raised $2 million to make decentralized finance (DeFi) a bigger part of the Polkadot ecosystem.
“One of the biggest problems we are trying to solve is the lack of lending protocols in the Polkadot/Kusama ecosystem,” Parallel Finance founder Yubo Ruan told CoinDesk in an interview. “We’ve seen a significant demand for DOT/KSM holders to borrow and lend their tokens.”
Announced Monday, Ruan’s project has won the backing of Pantera Capital, Polychain Capital, Lightspeed Venture Partners, Breyer Capital, 8 Decimal Capital and Hypersphere Ventures.
The funding comes as action on Polkadot ramps up in anticipation of the interoperability network’s “parachain” auctions. Auctions for slots on Polkadot’s experimental “canary network,” Kusama, begin this week.
Parallel Finance will run on both Polkadot and Kusama, offering DOT and KSM holders compound staking and zero-collateral, fixed-rate loans for parachain auctions in addition to interest rate swaps and a decentralized credit rating system.
DOT and KSM holders are currently challenged by the competition between lending and staking, Ruan said. If the lending rate is higher than the staking rate, holders have to unstake their tokens to earn yield, hurting network security. If the lending rate is lower than the staking rate, holders will prefer to stake DOT as the higher-yield option.
Ruan said Parallel solves this problem by using a lending protocol that allows holders to borrow cash on top of their staking derivatives. Using Parallel, users can earn "parallel interest" without sacrificing Polkadot’s network security, he added.
Ruan is supported by a team of developers and a technical adviser from Stanford University.