Why we invested in Parrot Protocol

Introduction

Primer on DeFi & LP tokens

  1. DEXs & Automated market makers (Uniswap / Sushiswap / Curve)
  2. Permissionless borrow/lend markets (Aave / Maker / Liquity)
  3. On-Chain Derivatives (Synthetix / dYdX / Opyn)
  4. Yield Optimizers (Yearn / Compound)
  5. Liquid staking pools (Lido)
Source: DeFi Llama
  1. DEXs / AMMs: In liquidity pools to facilitate trading
  2. Money markets: To secure deposits as collateral
  3. Derivative platforms: To post as collateral
  4. Yield Optimizers: Deposits are deployed in various strategies
  5. Staking Pools: Staked assets are delegated to validators etc..
  • >$40Bn locked on 3 major lending protocols
  • >$26Bn locked on major Ethereum DEXs
Source: Dune Analytics
Source: The Block

Current Problems

  1. Security Risk — Protocols expose themselves to the smart contract and security risk of the LP tokens’ underlying protocol and multiple underlying tokens. An exploit on the originating protocol could render the LP tokens valueless.
  2. Oracle Attacks — LP tokens are susceptible to oracle attacks since their price is usually fetched via an on-chain oracle. Specifically in the case of warp.finance, their lack of understanding of Uniswap’s TWAP data left them vulnerable to an exploit.
  3. Complex liquidations — LP tokens add additional steps and complexity to the liquidation process. In the event of cascading liquidations, there is a downward spiral that worsens the situation:

Parrot Protocol

The Solution

  • Gain more exposure to their native asset (SOL, ETH, BTC)
  • Gain yield by deposit PAI into a stablecoin pool / yield-farming strategy
  • Execute delta-neutral strategies while maintaining yield on native asset
  • Hedge market risk by using PAI as collateral on derivative platforms

Synthetic Assets

Why build on Solana?

Benefits for Borrowers

Parrot Staking Pool

Roadmap

  1. Extending its non-custodial money market to offer isolated lending markets. This allows Parrot to accommodate longer-tail assets by ring-fencing any potential risks in an isolated environment. Simultaneously, this enables holders of long-tail tokens the opportunity to gain yield by depositing, while also giving potential borrowers a permissionless market to borrow long-tail tokens. In future, Parrot can broaden the accessibility of DeFi value locked by potentially delegating lending capacity to off-chain lenders with real-world borrow demand (ie. micro-financing or pay-day loans). This is a novel concept that will undoubtedly augment the way that traditional borrowers access capital.
  2. Perpetual trading product with virtual AMM (vAMM). PAI will be used as protocol controlled value (PCV), where Parrot can utilize it to arbitrage the perpetuals if its perp price deviates from spot. The advantage of a vAMM is that it does not require any native locked liquidity, ensuring that Parrot does not cannibalize any liquidity within its other products. Users can utilize their minted PAI as collateral to gain perpetual exposure within any chosen token.

PRT Token

  1. Stability fees from minted PAI stablecoin
  2. Borrow interests from PAI
  3. Liquidation penalties
  4. Portion of borrow fees from lending market
  5. Trading fees from Perpetual trading (since vAMM does not require LPs, all fees can be directly captured by Parrot)

Risks & Threats

  • If its value significantly increases, the value of all borrowings (in PAI) will increase, effectively lowering the collateralization ratio for every debt position
  • If its value significantly decreases, the protocol controlled value held by Parrot may meaningfully diminish.

Conclusion

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A team of former consulting, Wall Street, private equity, government, and corporate veterans accelerating the blockchain revolution

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Sino Global Capital

Sino Global Capital

A team of former consulting, Wall Street, private equity, government, and corporate veterans accelerating the blockchain revolution

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