A Brief Guide to PURI-Based Lending & Borrowing
Hi there! This is a brief guide that will introduce you to the concept of lending and borrowing using the PURI token, helping you to unlock liquidity without having to sell PURI.
This is not financial advice; please do your own research before making any decisions. Lending & borrowing can be a powerful tool; here, we are only touching on the very basic concepts.
PART 1: BACKGROUND
Collateral-Based Lending & Borrowing — General Concepts
At its most basic form, individuals can deposit cryptocurrencies into a lending & borrowing platform (and specifically into a pool), which increases assets they have supplied. This gives the individual a certain amount of borrowing power, based on those assets. They can then leverage this borrowing power to borrow cryptocurrencies.
In this model, an individual must deposit assets in order to borrow assets. Thus, every borrower is also a lender, and as the pool grows, there are more and more assets to borrow from.
Deposit Assets -> Get Borrowing Power -> Borrow Assets
Lending & Borrowing — Interest Rates
Individuals who choose to borrow from the pool will pay an interest rate (referred to as APR). This APR will change depending on how much is borrowed. For example, if there is $10,000 USDC as part of the pool, and $100 is borrowed, the APR will be quite low. If $9,000 USDC out of the $10,000 is borrowed, then the APR will be very high.
Part of this APR is provided to those who have lent that particular asset. In our example above, if you as an individual have deposited $500 of USDC, and the current APR is 10%, then you will be earning 10% on your deposit. This helps balance out the lending and borrowing, as a very high APR will generally attract more individuals to deposit their assets, which then helps bring APR down. As more individuals then borrow, the APR goes back up, so on and so forth.
Deposit Assets -> Others Borrow Your Assets -> You Earn Interest
Using Lending & Borrowing Pools with PURI
As a very new community meme coin that is gaining adoption, PURI can benefit from lending & borrowing to help unlock liquidity. The reason for this is that currently, PURI is not yet accepted directly for payment or for use, which means that the value of PURI is hard to leverage. Most holders also do not want to sell/swap PURI, as that can negatively impact the price for everyone.
Because of this, a lending & borrowing pool can provide one way to ‘unlock’ the value of PURI without selling or swapping it.
A PURI holder can deposit PURI into a pool and leverage that deposit to gain borrowing power. They can then borrow other tokens such as SOL, ATLAS, USDC, etc., to use. This allows the individual to hold on to their PURI but still have liquidity to use in the meantime.
Deposit PURI -> Gain Borrowing Power -> Borrow Other Assets
Good to Know — FYI
For those new to these lending & borrowing pools, here’s a couple of things that are good to know.
1. When you deposit tokens such as PURI, the pool/platform will tell you how much borrowing power that provides you. Keep in mind that as the price of the deposited tokens fluctuate, that can increase or decrease the amount of borrowing power you have.
2. If for example you deposit PURI, and the price of PURI goes up, that will give you more borrowing power. If, however the price of PURI goes down, that will reduce your borrowing power. The pool/platform will indicate to you a borrowing threshold you currently have, and it is wise to stay under that threshold. In short, when you are borrowing, it’s a good idea not to max out your borrowing capacity.
3. When you borrow assets from the pool, there will be a ‘Borrow Fee’ displayed to you. This is a fee based on the amount you are borrowing. Because of this, it can be a good idea to not borrow, repay, borrow, repay the same assets in a short amount of time, as the fees will add up. At low APR, it can be more beneficial to hang on to the borrowed assets if you think you will leverage them again soon, versus repaying it, borrowing it again a short time later, and incurring another fee.
At the end of the day, the lending & borrowing pool can be a powerful tool to help ecosystems like PURI to unlock the value without forcing holders to sell/swap on the open market. It can also be an interesting form of income through interest rates collected from lending. As each pool grows with more and more lenders and borrowers, it can be a valuable service to the entire community.
PART 2: PLATFORM EXAMPLES
Lending & Borrowing Platforms
For Solana-based tokens like PURI, there are different platforms available that host lending & borrowing pools. Currently, Solend has a specific pool including PURI. In the future, other platforms may add PURI as well.
Solend
One platform is Solend (Solend | Lend and borrow crypto on Solana), which has multiple lending pools.
Solend allows individuals the ability to contribute to specific pools, and your lending & borrowing happens within that pool.
Currently, there is a community member-created pool that includes PURI which you can use to deposit PURI and other assets. (Solend | Star Atlas Puri | Lend and borrow crypto on Solana)
To deposit an asset, click on it and a dialog will open (let’s see this for PURI):
Here, you’ll be able to see any borrowing power you might have, any PURI you have already supplied, and any PURI in your wallet. From here, you can choose to deposit PURI.
Once you have deposited an asset, your borrowing limit will increase. You can then go to another asset, go to the ‘Borrow’ tab, and borrow from there. For example, let’s take a look at ATLAS:
This way, you can choose to deposit specific assets in this particular pool, which will all add to your borrowing power. Notice that each asset has a different lending weighting:
More established assets (and those with relatively lower variability) such as SOL and USDC have a higher weight. This means that depositing $1 of USDC provides higher borrowing power than depositing $1 worth of PURI. This helps protect the pool from big fluctuations in token value.
At the basic level, this is all there is to lending & borrowing! If you want to dive deeper, please read the documentation from Solend to understand more complex topics and additional actions you can take.
PURI On!
