We’re excited to introduce Prestare, a protocol that fills in one of DeFi’s biggest missing pieces: under-collateralized crypto lending and borrowing using only on-chain information. We believe this is a critical step towards increasing the efficiency of capital utilization in the crypto world and ultimately opening up crypto credit to the majority of the world. Through a combination of decentralization and on-chain historical interaction information, Prestare will securely allow anyone to become a borrower or lender of credit lending. Sound incredible? Let’s see what Prestare is doing!
Why Under Collateralized Borrowing Matters
Credit is the cornerstone of modern finance. In the past few hundred years, countless people have realized cross-time and cross-space exchange through credit loan value, allowing money to flow to where it is most needed, which has greatly promoted the efficiency of social capital utilization, and ultimately led to a rapid increase in productivity.
Today, the dominant form of DeFi borrowing is over-collateralized borrowing, and to get $100 in DAI, you need $150 worth of ETH as collateral. The reason is that because on-chain borrowing parties use semi-anonymous addresses, lenders do not know the identity of the borrower and its reputation, and vice versa. Without the borrower having any credit score, the lender can only provide credit for an amount below the value of the collateral.
This model is not dissimilar from the centuries-old practice of traditional pawn shops, in fact, one of the oldest financial institutions, dating back to 5th century China — we are still at such a naive stage.
Since 2017, undercollateralized loans have been the holy grail of DeFi elusive. Some projects try to achieve this by introducing off-chain information into the chain, which is contrary to the original intention of Crypto, and the solution is quite rough. It has to be said that due to the natural conflict between anonymity and credit, the real winner has yet to emerge.
How the protocol works
For individuals with information, digital identities are necessary to obtain low-collateralized crypto loans, as well as decentralized credit.
The borrower’s first loan on Prestare is still over-collateralized — this is normal, and we cannot be optimistic that a person will repay as promised without any penalty mechanism. But when the borrower repays and pays the interest, a part of the interest will be minted as CRT (Credit token), a “stable-like currency” anchored by stable assets, and rewarded to the borrower. The next time the borrower borrows, the borrower can pledge CRT for a lower interest rate than the last time — meaning more lending for the same amount of collateral. With the accumulation of interactions with Prestare, it does not take long for the borrower to achieve low collateralized lending, and it is in the case of the security of the lender’s assets. And CRTs are transferable, which means the credit can be transferred or purchased.
Going a step further, Prestare will analyze the borrower’s past on-chain interaction records, obtain the credit rating of each address, and cast it into a non-transferable NFT. This fully utilizes the composability of Defi, and the value of the discount when using CRT as collateral will be different for different credit ratings. By combining the historical information on the chain, we bind the credit and address, which coincides with the idea of the Soul Bound Token.
JOIN NOW
We cannot do this alone. It will take a strong global community to build together, and we want to hear from you. We are of particular interest to those looking to help finance and evaluate these early-stage loan opportunities.
About Prestare Finance
Prestare Finance (Prestare) is a lending protocol that offers a lower collateral ratio and can even support under-collateralized loans without using off-chain information. Under-collateralized borrowing is achieved by allowing the borrower to use a portion of the previously accumulated interests as collateral to borrow more funds next time. SoulBound Token containing credit score for all users need to be minted if users want to borrow on Prestare. Users with higher credit scores can have a loan with a lower collateral ratio.