Pledge Finance is a fixed-rate, fixed-term lending protocol for cryptoassets using a financial instrument called pNote.
Pledge provides a set of smart contracts, defined as financial NFTs.
These smart contracts for derivative trading, which typically exchange fixed-rate interest payments for floating-rate interest payments, are an important tool for investors who can use them for hedging, speculation and risk management on or cross chains.
Pledge uses the ERC 1155 standard to create an NFT to represent each loan, bond, insurance, as well as other assets.
What is pNote
pNote are transferable tokens that represent a claim to positive or negative cash flow at some point in the future.
The pNote tokens can be redeemed for 1 unit of currency and define the currency type and maturity.
The pNote tokens are always generated in pairs: assets and liabilities. Assets and liabilities are always zero in Pledger Finance.
Liquidity Pools
Pledge makes pNote available for trading within built-in AMM-enabled liquidity pools. A liquidity pool or maturity pool stores a pNote along with a currency type (e.g., Dai and pDai). A liquidity pool refers to a maturity date: a Dec 1 2021 liquidity pool holds pNote Dec 1 2021.
Maturity dates
Liquidity pools mature at certain intervals depending on the settings of the management parameters. As an example, quarterly pools mature every 3 months.
Types of users
Three types of users interact with liquidity pools:
- Lenders deposit Dai into the pool and receive pDai (a promise to receive a fixed amount of Dai at a future date).
- Borrowers take Dai from the pool and deposit pDai (a promise to pay a fixed amount of Dai at a future date).
- Liquidity providers add Dai and December 1, 2020 pDai to the pool, which can be lent or borrowed by either party.
Lending
Users wishing to lend their currency at a fixed rate can buy pNotes. The lender exchanges his currency at the time of the transaction for a larger fixed amount of that currency at some point in the future. The exchange rate the user receives implies a fixed interest rate on his loan between the time of the transaction and the time the pNote is repaid.
For example, a lender provides a liquidity pool with a loan of 100 DAI at a fixed interest rate of 5% for 3 months. When the loan matures on December 1, 2021, the loan of 100 DAI plus a fixed interest rate of 5 DAI is returned to the lender.
When the loan matures, the lender can redeem their pNote for currency.
Users wishing to borrow at a fixed interest rate can mint their pNotes and sell them for currency. By selling pNotes for currency, borrowers receive currency in exchange for an obligation to repay a fixed amount of currency at a certain time in the future.
When the debt matures, the borrower can either repay the currency they owe or their collateral can be used to cover the debt to the protocol.
Liquidity providers can collect currency into liquidity pools. To do so, they deposit currency and pNote to liquidity pools, making them counterparties to lenders and borrowers that are active in the protocol. In exchange for their deposit, liquidity providers receive a feen each time a lender or borrower makes a transaction between currency and pNote.
