The rise of the cross-chain ecosystem, MyBank creates the first high-leverage cross-chain lending platform in the Polkadot ecosystem

This article is from MyBank.

On June 3, Beijing time, the referendum 114 of the Kusama network, a canary network for Polkadot, passed. This means that the Shell parachain, which originally only had block addition and final confirmation validation on Kusama, has become the Statemine parachain, capable of token issuance and asset custody. This marks the formal establishment of the most important economic infrastructure for Polkadot's cross-chain network. Once Statemine operates smoothly, Kusama will officially start the slot auction. After the official collects all parameters for this slot auction, we believe that the slot auction for the Polkadot mainnet will soon follow.

In fact, there is a problem here: the market's attention is overly focused on the auction as a single point. The auction is not everything for Polkadot and cannot represent the immense potential contained in the cross-chain ecosystem. In other words, as the auction approaches, we need to take a step further and think about what kind of "emerging things" will sprout first in the ecosystem based on the cross-chain network after the auction is completed.

What to Look for in the Next Generation of DeFi? Cross-chain + DeFi + Derivatives

Every explosive growth in the cryptocurrency market and blockchain-related applications is the result of the accumulation of underlying technology and infrastructure to a certain extent, whether it was the token issuance boom in 2017, the DeFi liquidity mining wave last year, or the popularity of IDOs at the beginning of this year. The success of Ethereum in the DeFi ecosystem and the problems it exposed during this process have made many public chain teams see opportunities. Everyone is developing independent public chain infrastructure and ecosystems along their own paths, continuously expanding the boundaries of the DeFi application ecosystem. However, the problem is that the direction of this process is fragmented.

When public chains with different needs and characteristics operate independently, there will be independent ledgers, wallets, applications, and assets. In independent scenarios, these public chains can meet needs well, but once there is a crossover of scenarios or needs, users will have to pay high time and financial costs, and may even have to complete DeFi operations in an environment with certain risks. The demand for cross-chain operations and cross-chain liquidity is an inevitable trend. As the ecosystems and asset scales of various public chains continue to expand, the overflow of funds or the need for broader circulation space will become a necessity. Cross-chain Bitcoin is a natural product of this trend, and the accompanying issues of the demand for cross-border capital circulation are to solve the problems of high thresholds, high costs, and high risks in cross-chain operations.

Currently, cross-chain networks led by Polkadot and Kusama provide the necessary prerequisites for cross-chain asset circulation and cross-chain DeFi operations. This means that users can complete cross-chain lending, trading, liquidity mining, and various yield-generating operations on a single platform in a decentralized manner. Users' crypto assets can flow through the cross-chain network in a larger market, achieving higher capital utilization efficiency.

It can be said that DeFi platforms in this direction are the embryonic form of the next generation of DeFi.

Returning to the development of DeFi itself, although DeFi has withstood multiple major tests and achieved multi-layer breakthroughs, the most core points still belong to basic spot applications. The next growth point has been discussed for a long time. We can refer to the experience of traditional financial development, where the volume of derivatives is 40 to 60 times that of spot. However, in the crypto market, the trading market value of derivatives does not even account for half of the total digital asset market. In contrast, the development of derivatives still has enormous room for imagination. The hotter the crypto assets and DeFi become, the stronger the demand for derivatives will be, and the speed of market penetration and transmission will continue to accelerate, further stimulating the emergence of new market species to fill the existing market gaps and demands.

However, achieving this is very difficult. Even on the same chain, many DeFi functions are also decentralized and independent. For example, if a user wants to leverage long or a certain type of asset, they first need to borrow a certain amount of assets in a DeFi lending protocol, and then manually switch to a decentralized exchange to open a position. User products interact through multiple protocols to control the collateralization ratio. Besides the cumbersome operations, managing positions is also very difficult. Meanwhile, in this over-collateralized lending model, whether going long or short, the leverage cannot exceed one time.

We can connect the various phenomena mentioned above to outline a clearer route for the next generation of DeFi applications.

MyBank: The First Cross-chain DeFi Lending Platform in the Polkadot Ecosystem to Achieve High Leverage

As the cross-chain network infrastructure gradually improves, and DeFi is an important trigger for the launch of each public chain ecosystem, the ecosystem needs an application that integrates cross-chain, DeFi, and derivatives functions. Therefore, in 2021, a cross-chain DeFi new species named MyBank from the UK was included in the Web3 Grants program and became an officially supported project.

In simple terms, MyBank is a cross-chain DeFi platform deployed on Polkadot, utilizing Substrate's Runtime and Bridge to achieve interoperability between different public chains through the XCMP protocol. On one hand, based on the advantages of the cross-chain network, MyBank aggregates diverse crypto assets, allowing users to freely circulate assets across multiple chains in a safer decentralized manner, without complex and high-cost operational processes. On the other hand, MyBank fills many gaps in cross-chain DeFi business, such as high-leverage lending, high-leverage trading exchanges, unsecured loans, and credit loans.

MyBank's core business is mainly divided into three parts: lending BWS, trading MySwap, and value securitization protocol CLF. These three parts basically cover the fundamental needs of current DeFi. MyBank provides a place for crypto assets and users, a platform where assets and user operations can seamlessly connect and circulate. All actions can be completed in a one-stop manner on MyBank through smart contracts, even across multiple scenarios such as liquidity mining, lending, and trading. This is an unprecedented innovation in cross-chain DeFi.

The First Closed-loop System Based on High-leverage Operations in the Polkadot Ecosystem

In a mature foundational environment of the cross-chain network, a new financial system is needed for more efficient capital allocation. In the past, our focus on DeFi may have been on single products, but the current trend is that the intersection of DeFi products and services is becoming more frequent, and the trend towards systematization is gradually becoming clear.

This closed-loop system can be seen on MyBank. First, the fundamental advantage of MyBank is the rich and diverse crypto assets brought by the cross-chain network. Then, the three core businesses are important user entry points and form a liquidity cycle for assets. BWS will release the liquidity of depositors' assets to leverage their social guarantee value, supporting zero-collateral loans for friends in social networks. When the community governance organization is improved, it will support users in obtaining credit loans. MySwap will support users in high-leverage trading above 1x, allowing users to conveniently and quickly short and long, which not only significantly improves the utilization efficiency of assets in the financial market but also further enhances the capital utilization rate of the BWS fund pool. Creators can issue their exclusive tokens/NFTs in CLF to enhance their connection with fans and obtain startup funds. Fans can subscribe to the tokens/NFTs issued by creators, which can be traded and auctioned in MySwap. So what is the basic logic and positioning of the various product businesses within MyBank's closed loop?

Lending BWS: A Comprehensive Lending Business Centered on High-leverage Lending

Leverage Lending

MyBank is the first cross-chain DeFi platform in the Polkadot ecosystem to support high-leverage lending operations. Users initiate leverage lending through the trading fund pool, at which point the lent funds will be locked and automatically complete liquidity provision and even leverage trading operations through smart contracts. Therefore, the collateralization ratio and liquidation ratio can be greater than 1, allowing traders to borrow funds exceeding the value of collateral. Margin trading as an entry point will provide a better user experience, while the capital utilization efficiency of the lending fund pool will also be improved, allowing liquidity providers to obtain better returns.

Social Guarantee Loans

Based on collateralized lending, MyBank will release the liquidity of depositors' assets to leverage their social value, providing zero-collateral guarantee lending services. Depositors can use their deposit certificates to guarantee loans for friends in their social network, and friends can obtain zero-collateral loans on the platform based on that guarantee certificate. Each user can choose to maintain their own social network circle, and friendships need to be confirmed by both parties. When a user has a loan demand and wants to choose a zero-collateral guarantee loan, they can send the loan event to their friends' inboxes, and friends can choose to respond to become that user's guarantor. Once the guarantee is successful, the system will issue the loan to their friend, and the deposit certificate will be locked by the system but will not affect the guarantor's earnings as a liquidity provider. Introducing the guarantee mechanism will use idle deposits to increase the collateralization ratio while alleviating the system's liquidation issues in high-volatility market conditions. The guarantee mechanism is built on the foundation of social networks, achieving risk-free constraints through social networks, where lenders and guarantors have real social connections off-chain.

Unsecured Credit Loans

Users' deposit records, loan records, guarantee records, transaction records, and social networks will all be stored on-chain. The accumulated anonymous credit data of users, combined with off-chain governance, brings possibilities for developing credit loan services. Credit loans rely on a strong governance organization, which needs to integrate relevant institutions from different fields. MyBank has reserved 5% of tokens to encourage users to participate in community governance and off-chain resource docking. When the ecosystem develops to a certain scale and the governance organization is improved, it will gradually open up. In the first phase, it will be open to institutions and enterprises approved by the community.

Over-collateralized Lending

Depositors can inject liquidity into the corresponding MyBank fund pool to obtain guaranteed interest income. MyBank's bilateral asset liquidity pool will greatly promote the improvement of asset utilization. For over-collateralized lending, borrowers need to over-collateralize a certain amount of assets as collateral and choose an appropriate collateralization ratio to borrow the required assets. When the collateralization ratio falls below a certain threshold, the system will trigger liquidation to auction the collateral. Users do not need to interact peer-to-peer; each loan will interact with the fund pool. Compared to single-chain lending markets, borrowers can provide various crypto assets as collateral, and the system will automatically perform cross-chain conversions.

MyBank provides users with different tiered solutions centered around high-leverage and unsecured lending, meeting diverse DeFi lending needs.

Trading MySwap: A Decentralized High-leverage Cross-chain Trading Center

High-leverage Trading

Decentralized high-leverage trading is currently one of the most promising directions in DeFi. The problem is that most lending protocols are independent of DEXs. If users want to engage in leveraged trading, they must first pledge a portion of funds from the lending platform to obtain a loan for trading on DEX. However, the deposit certificates obtained from the lending platform have actual value, but this liquidity has not been released, resulting in low asset utilization in lending projects and ultimately leading to lower deposit rates on lending platforms. Manually pledging loans on the lending platform and then returning to DEX for trading makes the entire experience cumbersome, and users cannot conveniently control their trading positions, indirectly increasing trading risks and operational costs. Moreover, current lending protocols are limited by the over-collateralization mechanism, preventing users from achieving a capital utilization rate above one time.

MyBank integrates the lending fund pool with the trading fund pool, and the assets for leveraged trading will be locked in the network. Therefore, assets borrowed from the lending fund pool can exceed the value of collateral, allowing leverage to exceed one time. The liquidation of leveraged trading will be independent of the liquidation of over-collateralized lending, so theoretically, the leverage can be unlimited. However, considering that liquidation has a certain delay, different funds will have different maximum leverage ratios based on their risk systems. To engage in leveraged trading, users only need to operate once on the front end, and the multiple steps above will be automatically completed in one Bloc. As a parachain of Polkadot, MySwap will not face the gas fee sniping issues existing DEXs on Ethereum currently encounter, and users do not need to pay expensive fees while transactions will be executed at a faster speed.

If a user is not optimistic about the future rise of XToken, they can choose to borrow XToken from BWS and then sell XToken in MySwap to obtain stablecoins, waiting for the price to drop before using the stablecoins to redeem XToken and repay the loan. If a user is optimistic about XToken continuing to rise in the future and wants to leverage long XToken, they can borrow stablecoins from BWS and then use the stablecoins in MySwap to obtain XToken, selling XToken when the price rises to redeem stablecoins and repay the loan.

Value Securitization Protocol CLF: Tokenization of Individual Social Value and NFT Issuance

Securitization

MyBank's CLF is a value securitization protocol, similar to asset securitization. Creators can issue social tokens and NFTs based on their potential and future revenue as value support, allowing fans to invest in creators to share in their future earnings. Tokens can be traded on MySwap, and NFTs can be auctioned through MySwap. In addition to providing asset issuance functions, MyBank will also offer creators dApps such as IPFS and Vote to help them build bridges with their fans.

When MyBank develops to a certain scale and the collective governance organization gradually improves, connecting off-chain resources with on-chain governance, outstanding creators approved by the community can initiate a certain amount of credit loans from the lending fund pool. At the same time, high-quality social tokens and NFTs that meet certain conditions will also be allowed as collateral for lending.

Liquidation

MyBank proposes a more advanced liquidation plan to avoid the design flaws in the liquidation mechanism exposed during previous major market fluctuations. First, over-collateralized lending, guarantee lending, leveraged lending, etc., all require the system to monitor the collateralization ratios of positions in real-time. Unlike current DeFi protocols on Ethereum that rely entirely on third-party liquidators, MyBank's liquidation monitoring mainly relies on collector miners on the ParaChain. Its Runtime has a built-in distributed scheduling system and a priority queue, with different miners responsible for processing different positions to achieve parallel monitoring, allowing liquidation tasks to be submitted at higher speeds.

In specific liquidations, MyBank has a three-tier safety net. First, collateral/margin assets will be auctioned through a built-in trading pool with a default slippage. If execution fails in the built-in trading pool, it will attempt to auction on other DEXs in the ecosystem. Based on these two, MyBank will expose third-party APIs and provide front-end pages, allowing third-party liquidators to participate in asset auctions. Successful liquidators will receive a certain percentage of liquidation penalties as incentives.

MB Token

MB Token is the mainnet token of MyBank. The total supply is fixed at 1 billion, adopting a deflationary release mechanism that is faster than Bitcoin's. The cross-chain DeFi trend and MyBank's diversified DeFi application system provide a strong multilateral token circulation market for MB, which will become a strong support for the continuous appreciation of MB's value. The distribution model is as follows:

• 60% liquidity mining: incentives for liquidity provision, lending & trading rewards, credit guarantees, etc.
• 13% investors: returns for investors.
• 5% governance pool incentives: used to incentivize on-chain governance participants.
• 5% creator economy community development incentives: to attract quality creators to participate and issue original works.
• 10% ecosystem development: project ecosystem development slot auction incentives.
• 7% founders: founding team.

MyBank will reserve 60% of MB Tokens for user incentives. Participating in providing liquidity, lending, guarantees, and trading on the MyBank platform will earn corresponding token rewards. MB Tokens will be released linearly, with the amount released halving every two years. Additionally, holders of MB Tokens will enjoy profit-sharing within the entire MyBank closed-loop system.

The resilient vitality of DeFi has exceeded all expectations, and it continues to mutate and grow. The environment built by cross-chain technologies such as Polkadot provides a new catalyst for this innovation and mutation. MyBank is an attempt to integrate underlying technologies that are not perceived by users in terms of value into an application platform that can bring actual value to users. In the trend of multi-chain and cross-chain DeFi, MyBank may become the most user-friendly, low-cost, and high-yield representative of Web 3.0 DeFi.