Written by Logan Smith

On January 20, 2022

Proton Loan is now live!

Our state of the art cryptocurrency borrowing and lending platform is now live!

Proton Loan is a new decentralized lending market built on the Proton blockchain. Utilizing the cross-chain capabilities of Proton wrapped xTokens, Proton Loan opens up a new possibility for borrowing and lending against multiple blockchains that were not previously accessible on Ethereum or other blockchain protocols. 

As always, because this is built on the Proton blockchain, there are no gas fees for Proton Loan. 

By using a system of smart contracts powered by the Proton blockchain, users can request and fulfill loans using cryptocurrency without the need for a central mediator and without regard for the parent blockchain protocol of the requested asset. That means a cryptocurrency lending marketplace that is decentralized, accessible, and powerful.

How does Proton Loan work?

Proton Loan is a non-custodial decentralized lending protocol consisting of two parties:

  • Depositors who lend tokens to a market
  • Borrowers who borrow the lent tokens from a market and pay interest to the depositors in return

As one does not know the parties who engage as borrowers, it is impossible to accurately assess a borrower’s default risk. This risk is accounted for by requiring all loans to be over-collateralized. To learn more about collateral, visit the Documentation for Proton Loan. To figure out what all of the different terms and acronyms mean, check out the Proton Loan Glossary.

Why would someone borrow cryptocurrency?

Borrowing cryptocurrency allows people to use cryptocurrency without having to sell what they own. In other words, rather than needing to sell $700 worth of XBTC to buy a new phone, you could simply borrow $700 worth of XUSDC, offering your XBTC as collateral, buy your new phone, then pay back the $700 that you owe and get your XBTC back. In this way, you keep your price exposure to XBTC, keep on HODLing, but still get access to those funds.

But borrowing cryptocurrency goes beyond being able to make real-world purchases without losing your crypto funds. Cryptocurrency borrowing allows you to chase long and shorts in the market while reducing the risk of losing your preferred price exposure. Let’s explore a few examples of use cases for crypto borrowing to understand why this is such an exciting option for so many people.

Example 1: Long trading through crypto borrowing

Here’s an example of how borrowing crypto helps with longs: let’s say you have Token 1, and you don’t want to sell Token 1, but you’re very interested in Token 2 because you think it’s price may go up by 30% in the next year. In this scenario, you may decide to borrow 45% worth of your Token 1 (setting it aside as collateral) in the form of a stablecoin (like XUSDC) and use that to buy Token 2. 

After a few months, you were correct – you hit your target of a 30% increase on the price of Token 2! You celebrate by selling Token 2 back into XUSDC, and using the XUSDC to pay off your original loan. You walk away with all of the money you set aside as collateral (Token 1), plus your profit from Token 2.

Example 2: Short trading through crypto borrowing

Similar to the first example, you own a good amount of Token 1, but you think the price of Token 2 is going to drop in the near future. You again borrow some XUSDC, and use this to set up a short against Token 2. Your calculations are correct, and you hit your sell target – immediately making a profit. You take this profit, pay off your loan, and walk away with all of your original Token 1 plus a little extra from your successful short.

Example 3: Chasing NFTs

Imagine you see an NFT that not only looks cool, but is available at a bargain price. You’ve heard of this NFT artist before, and you just know that this is something worth having. However, you really can’t risk selling Token 1 and missing out on a bull run that could be just around the corner. Instead, you borrow some XUSDC against your Token 1, buy the NFT, and sell it soon after once the price has tripled. You pocket the profit, pay back your loan, and keep your Token 1 in time for the bull run.

Why would someone lend cryptocurrency?

Lending cryptocurrency allows you to earn interest on the cryptocurrency that you own, offering a way to put your money to work for you. When combined with yield farming and staking, cryptocurrency lending is simply another way to earn more cryptocurrency while relying on a system of smart contracts to execute the transactions for you. Because the interest rates on Proton Loan are variable, you can loan cryptocurrency depending on the current interest being offered to you – allowing you to shop around, time your loans, and make the most profit possible.

What cryptocurrencies can I borrow and lend on Proton Loan?

Proton Loan supports the following cryptocurrencies to be borrowed or loaned:

  • XBTC
  • XETH
  • XDOGE
  • XPR
  • XMT
  • XUSDC

Do the interest rates change on Proton Loan?

Proton Loan features variable interest rates that respond to market pressures on our platform. The Proton Loan protocol was designed to adjust to supply and demand, meaning that the interest rates will increase as more liquidity is borrowed, and decrease as more liquidity becomes available. In this way, Proton Loan’s responsive interest rates empowers borrowers and lenders to seek out the interest rates that best suit their investment strategies and risk tolerances.

Here’s an example: Imagine there is 1 million XUSDC in the pool and you borrow $100,000 worth. In this example, the interest rate on your loan may be less than 1% APY. However, what if you borrowed much more of that pool – like $950,000 worth? In this case, the interest rate may suddenly be closer to 90% APY. When this happens, lenders may see that the interest rate of the XUSDC pool has become quite high, which is attractive to lenders – leading them to deposit more XUSDC into this pool. This leads the interest rate to begin to drop in the pool, allowing more borrowers to take out a loan.

The Proton Loan interest rates fluctuate with borrowers and lenders; the more borrowers, the higher the rate of return for lenders, and vice versa.

How do I start using Proton Loan?

The first step is creating a free Proton account, which can be done on the WebAuth.com wallet or any Proton client. You can then deposit supported cryptos to the WebAuth.com wallet and connect your wallet to Proton Loan.

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We know you probably have lots of questions about Proton Loan, and we can’t wait for you to try it out and experience what we’ve been building. Head on over to ProtonLoan.com to try it for yourself; take the time to explore the docs, where you can find an FAQ section, a glossary, and a knowledge base. Be sure to follow Proton Loan on Twitter to learn more about this exciting new part of the Proton ecosystem.

Welcome to Proton, we’re glad you’re here.

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