In this article I’ll highlight my Primex Finance investment thesis and why I’m excited about what the Primex is building. Primex brings lenders and traders together on one simple platform to create a net-positive outcome for both groups. Think of it as the mutualism between the oxpeckers and the buffalo.
What is Primex Finance?
In simple words, Primex Finance is a DeFi platform that connects lenders to traders on one simple platform. Lenders seek higher APYs, while traders seek collateral for leveraged spot trading and margin for other DeFi activities such as liquidity provision and lending.
Here is how it works at a high level:
Let’s dive a bit deeper into the specifics of how the protocol works, using a diagram from the Primex Finance’s whitepaper:
Credit buckets
The credit buckets are the secret sauce of the protocol. The smart contracts that make it all possible.
To put it simply, the credit buckets are pools of liquidity. Each credit bucket comes with a set of parameters that determine the rules of how the funds inside of the pool can be used. These rules give an idea of the risk profile associated with each pool.
How are these buckets used? In principle, you could make the comparison of these buckets as an escrow or intermediary. Maybe a multisig even. In any case, the point is that traders will never directly receive funds that lenders deposit into the credit bucket. Rather, the credit bucket is able to interact directly with the DEX or DeFi protocol that the traders want to trade on.
This reduces risks for the lenders, and also reduces the collateralization needed from traders.
The following parameters are shown for each credit bucket:
- Main asset – This asset is provided by Lenders and borrowed by Traders;
- Pairs – Traders can exchange the borrowed funds for assets from this list;
- Max leverages;
- Liquidation rules;
- Interest for Lenders;
- Fees for Traders.
Keepers
Keepers play an essential role within the Primex Protocol when it comes to timely liquidation of open positions, when a liquidation event is needed to protect the funds from lenders.
The transaction that liquidates/closes the position needs to cover the borrowed tokens plus the fees for the lenders. Buuuut, you need external actors that initiate liquidations or conditional orders. And that my friends is where the keepers come in. Keepers are the magical beings running software to manage all of the above.
Liquidation conditions are stored on-chain for transparency and to make the system trustless.
Lenders 🤝 traders: a perfect synergy
Primex Finance is positioned as a non-custodial prime brokerage. When I first read about Primex it made a lot of sense to me. Here is why.
The most powerful thing for any start-up is to find a good product-market-fit (PMF) or product-user-fit (PUF). Reading the Primex docs for me was a lightbulb moment. It simply makes sense. Through Credit Buckets, Primex connects lenders seeking higher APYs, to traders seeking additional buying power. A perfect synergy.
Lenders;
- Earn a higher APY
- Achieve better utilization of their liquidity (ample liquidity is not earning anything, put it to work!)
- Achieve diversification by utilizing multiple credit buckets
In the future, lenders will also be able to lend their assets cross-chain through one interface, as well as opt into fixed rate interest rate opportunities.
Traders;
- Enjoy the same advanced UX and tooling typically only found on CEXs
- Trade an unlimited number of assets and combinations, on-chain and non-custodial
- Trade spot instead of derivatives
- Gain access to cheap margin with flexible collateral opportunities
- Tap into liquidity from various sources through one interface
Further on the topic of PMF/PUF, real founders solve real problems. And Primex fixes a bunch of commonly experienced problems within crypto:
The transition from v1 to v2: what does Primex have in store for us?
One thing I’m looking forward to is the rollout of Primex v2. Let’s explore what this is all about.
While the current iteration of the Primex protocol is already quite impressive, it’s only the start. Primex V1 is centered around spot margin trading throughout the concept of credit buckets, which we highlighted earlier in this article.
Primex V2 turns the protocol into a DeFi powerhouse; a prime brokerage that allows leveraged DeFi activities beyond just trading. This opens up a whole new dimension of possibilities.
What exactly is Primex V2 about?
Primex V2 opens up new functionalities using the borrowed liquidity on the platform. It creates the possibility of leveraged DeFi activities such as:
- Liquidity provision on spot and derivatives DEXs
- Lending (Aave, Compound)
- Liquid staking (Lido, Rocket Pool)
- Using trading position funds in yield-generating protocols
- Liquidity for options protocols
- Looping strategies
V2 ushers in a new era for Primex where just leveraged trading is no longer the central thesis. It evolved into Universal leverage portfolio’s. V2 will revolve around portfolio’s that consist of a set of positions. A position can represent a certain value or debt in both fungible assets (e.g. spot tokens or yield-bearing tokens) as well as non fungible assets (e.g. Uniswap V3 LP position NFTs).
All positions within a portfolio have a collective estimated liquidation value. Through oracles, this value is recalculated after every price change in one of the positions or underlying assets.
Portfolios contain debt to multiple credit buckets, called debt positions. These have a negative value, whereas other positions hold a positive value.
In short, in V2 there is much more utility for the liquidity on the platform, more ways to generate yield, and potentially higher APYs for lenders!
Hedging strategies
V2 not only gives traders more access to various strategies, but it also adds protection for lenders.
A key part of it is that traders are able to hedge their trading by opening leveraged LP positions. With traders trading spot assets, giving them the chance to open leverage LP positions allows them to take on delta-neutral strategies.
The LP position earns interest which offsets the cost of borrowing. In the end, the expectation is that this provides greater returns with lesser risks of liquidation. The longer the time frame, the more returns generated by a spot trade hedged with a leveraged/hedged LP position, compared to a spot trade without a leveraged LP position.
Team and backers
When investing early, you’re investing in teams. And well, the team at Primex Finance consist of bright minds in blockchain development, mathematics, science, and DeFi experts.
That’s further solidified by looking at the investors they have managed to onboard. Primex raised a $5.7M seed round back in 2022, onboarded some of the top VCs in the space. Onboarding the likes of Pragma, Wintermute, and Morningstar is no small feat.
I’m quite excited about what Primex is building, and can’t wait to see them grow their TVL and user base. And in true crypto fashion, I recommend everyone to start accumulating those sweet, sweet points👀
Primex Finance x Coinlist — airdrop inbound?
Coinlist just announced the Primex Contribute & Earn campaign. This is your chance to earn your share of 2% of the total supply! Lenders and Traders can expect to earn precious points over a 12-week timeline, divided in 6 distinct phases. During each distinct phase, the top 200 on the leaderboard earn points. To make it fair for newcomers, the leaderboard resets every two weeks.
Check out the Q&A for more info: https://coinlist.co/help/primex-rewards-campaign.
I hope you enjoyed this article! Disclaimer: as the title suggests, I’m an early investor in Primex Finance.
