A Fully On-Chain Fractional Reserve Lending Protocol
Pinjam (Pronounced: Pin-Jump) has recently launched its testnet on the Avalanche Fuji network!
So far, the response and feedback have been great as we are leading up to our Avalanche mainnet launch!
Pinjam will soon officially be the first Fractional Reserve Lending Protocol to be launched in all of DeFi — so what does that mean?
DeFi native users will enjoy the benefits of fractional reserve lending without the usual risks associated with traditional finance — the same ones that make economies and banks go bust during the 2008 financial crisis.
Fractional Reserve Banking in Traditional Finance (TradFi)
Allow us to explain.
Fractional reserve banking has been used throughout the history of banking as a means to compete with other banking competitors. Banks need to offer higher yields to their depositors — so that you (as a depositor) will be more incentivized to deposit with their bank.
In order to achieve that higher yield, the bank needs to lend out the money and make it as productive as possible — without losing it all.
And therein lies the problem with fractional reserve lending in TradFi.
In traditional finance, when you deposit your money into a bank, you have no idea what kind of risk the bank is taking. As a matter of fact, the bank isn’t even fully aware of how much risk they are taking on.
When they loan your money to a business or another bank — as soon as the money leaves their account — it disappears into a black hole where no one really knows what is happening with that money.
This is known as hidden counter party-risk.
This is what makes collapses like FTX possible because investors and lenders do not know how user deposits are actually being kept and how they are used.
You have to essentially trust the individual and the spreadsheet that they create: https://twitter.com/Physics3221/status/161629063668000768
Fractional Reserve Banking on the Blockchain
Pinjam is the first Fully On-Chain Fractional Reserve Lending Protocol.
Phew, that was a mouthful!
This means that when you deposit money into Pinjam, you will have full knowledge of the counter-party risk the Pinjam protocol is taking on — such as AAVE or Curve.
Gone are the days when you pay a bank $50 — just to wait a whole week to find out where your money is.
With a simple block explorer like Etherscan, you can see all the code on how your capital will be managed, how it is utilized by borrowers, and how your unborrowed funds are being productive on other blue-chip protocols.
By being decentralized & public on the blockchain, users will enjoy the benefits from fractional reserve lending by achieving 100% capital productivity earning you higher yields — while eradicating the downside of hidden counter-party risk!
Fractional Reserve Lending does not only benefit users.
In fact, it benefits the entire DeFi ecosystem.
Pinjam is launching its mainnet release on Avalanche soon. If you want to stay updated, you can check us out here:
Twitter: https://twitter.com/PinjamLabs
Discord: https://discord.gg/5F66V8cKqa
Website: https://pinjamlabs.com/
