How PWN Empowers DeFi Users to Customise Risk and Reward
Decentralised lending has long been a cornerstone of decentralised finance (DeFi), offering opportunities for users to lend and borrow without intermediaries. However, popular lending platforms often lack the flexibility and customisation that many market participants desire. Enter PWN, a peer-to-peer (P2P lending platform that pushes the boundaries of what decentralized lending can achieve.
What is PWN?
PWN is a P2P lending protocol designed to remove reliance on price oracles. This innovative approach enables users to lend and borrow any type of asset, creating unparalleled flexibility compared to traditional platforms. Borrowers and lenders interact directly by posting their proposals, negotiating terms, and finalizing agreements in a trustless manner powered by smart contracts. This streamlined process ensures simplicity and removes the need for intermediaries, giving users full control over their transactions.
What sets PWN apart is its ability to accommodate exotic assets as collateral while allowing full customization of loan terms. Whether it’s NFTs, unique tokens, or less commonly used digital assets, PWN enables participants to craft highly tailored agreements. However, the protocol’s flexibility comes at a cost: lower liquidity. Since every loan requires individual negotiation, borrowers and lenders must align on terms, which can take time. The system’s adaptability shines in niche markets but relies heavily on active market participants for matches.
To help building trust within the ecosystem, PWN incorporates a reputation system that helps users identify reliable counterparties. A strong reputation improves the chances of successful agreements, fostering a safer lending environment. Furthermore, the protocol’s oracle-free design eliminates the risk of price-based liquidations, ensuring that collateral is only forfeited if borrowers fail to meet repayment deadlines. This unique mechanism reduces stress for borrowers, offering an added layer of protection from market volatility as well as protection from oracle-based exploits.
By removing the reliance on oracles and introducing features like reputation tracking and flexible asset support, PWN offers a novel alternative to conventional lending protocols. While it may not match the liquidity of larger platforms, its approach unlocks new possibilities for DeFi participants, especially those looking for highly customized lending experiences.
Using PWN for custom DeFi Strategies
PWN enables users to design sophisticated strategies like interest rate swaps by allowing borrowers and lenders to model their own risk profiles and negotiate custom terms. This flexibility provides opportunities to profit from differences between market rates. Users can assess their strategies by evaluating their own risk scores and determining if the potential returns outweigh the risks. This customizable approach empowers participants to explore novel financial opportunities while maintaining full control over their risk management.
To illustrate PWN’s potential, let’s examine a real-world example of creating an interest rate swap strategy. By incorporating a custom profitability model, we can leverage historical rates from Ethena Labs’ USDe stablecoin. This example demonstrates how borrowers and lenders can use historical data to better understand trends and make informed decisions based on both past performance and anticipated market conditions.
The first step is to analyze the historical APYs of sUSDe since its inception. By plotting the frequency of each investment APY as a histogram, we gain insights into its distribution. To further refine our understanding, we apply a Kernel Density Estimation (KDE) function to fit a density curve over the historical data. This approach provides a clear visualization of APY likelihoods, enabling us to incorporate these probabilities into a comprehensive profitability model.
Next, we can combine profitability data with the likelihood of various borrowing and investment APRs to create a detailed profitability model. This visualization provides traders with a clear picture of the trade-offs between borrowing costs and potential returns. By relying on historical datasets and probability distributions, users can evaluate strategies with a nuanced perspective, helping them make informed decisions in an ever-changing market environment.
Why is this analysis important? It empowers users to create personalised risk/reward models tailored to their specific strategies and goals. Instead of being constrained by rates dictated by the current market, participants can integrate future market trends into their models. This proactive approach allows them to stay ahead of market shifts and adapt their strategies to maximize returns while managing risks.
While platforms like Pendle Finance or IPOR Protocol provide tools for managing interest rate strategies, they often prioritize liquidity and focus on blue-chip assets, limiting flexibility. PWN bridges this gap by offering custom solutions tailored for non-traditional or exotic assets. This makes it an ideal platform for those looking to experiment with niche financial instruments while maintaining flexibility in their strategies.
With PWN, the possibilities are virtually limitless. Users can borrow against a wide range of creative assets, including Concentrated Liquidity AMM (CLAMM) LP positions, Pendle Finance Principal Tokens (PTs) or Yield Tokens (YTs), or any other unconventional collateral. As long as borrowers and lenders agree on terms, PWN enables the transaction, unlocking a world of financial innovation that is only constrained by imagination and market demand.
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