Defi offers a new world of financial opportunities, providing a permissionless alternative to the costly, slow, and often inaccessible legacy system and its product structures.
Unlike fiat, however, it can be hard to utilize those digital assets outside of the defi ecosystem, with a lack of gateways to the real world.
Built on the multi-chain Polkadot network, Collateral aims to deliver a bridge between fiat and defi with a unique range of products that can unlock the value of crypto assets and realize it by enabling payments at the point of sale in a growing network of global merchants and retailers.
So what is Collateral, what does it offer, and how does it leverage the Polkadot network?
What Is Collateral and How Does It Work?
Collateral is a next-generation payment gateway protocol that bridges the fiat and crypto worlds, allowing users to store, stake, loan, save and spend their digital assets via the same application.
Uniquely, Collateral allows users to unlock and utilize the value of their crypto assets without having to sell them. Instead, by using them as collateral to provide liquidity against merchant payments, users can retain their potential upside.
The Collateral ecosystem is powered by a peer-to-peer network of lenders and borrowers, with transactions seamlessly managed via smart contracts. The network is open to anyone without the bureaucracy and inaccessibility of traditional finance. Lenders stake crypto assets into staking pool contracts to receive attractive APYs. Borrowers’ crypto assets are locked in over-collateralized smart contracts to provide security to those lenders.
The Collateral protocol automatically calculates the amount of over-collateralized crypto assets required to be locked in such smart contracts to cover fiat payments at a point of sale. Once locked, the fiat equivalent is instantly sent to the merchant.
Collateral is the first platform to enable users to leverage their defi-based digital assets without the need for a loan drawdown facility, saving time and making everyday payments feasible. By facilitating purchases in-store and online using crypto as collateral via its global network of merchants, Collateral also aims to disrupt dominant payment processors like Visa and Mastercard.
What Does the Collateral Platform Offer?
Collateral’s unique payment gateway protocol opens up benefits across several product use cases and a native token utility, managed via the Collateral wallet app.
The Collateral platform allows merchants to sell goods and services to a new market of crypto holders, who may previously have been unwilling to part with their digital assets and lose potential upside, receiving native currency payments seamlessly.
Users can pay for products and services using the Collateral app by simply scanning a QR code to automatically lock crypto as collateral and release the fiat equivalent to the merchant at the point of sale. The fiat can then be repaid at any time to unlock the crypto assets again.
On the defi side, users can also access instant loans for larger purchases with the lowest collateral-to-value (CTV) on the market, locking up the required crypto assets to receive funds in a native currency of their choice.
Users can also generate a passive income by staking crypto assets in smart contract lending pools and earning up to 60% APY rewards. The over-collateralization of loans ensures the security of the staking contracts, with Collateral’s Chainlink-powered oracle monitoring collateral prices to ensure the CTV is maintained, liquidating the collateralized assets if it falls below that predetermined level.
Collateral’s decentralized platform will be governed by token holders, managing decisions through a system of on-chain voting.
The COLL token is the native utility token of Collateral. COLLG is the governance token in the ecosystem.
Users can stake COLL to earn COLLG and participate in protocol decision-making. Staked COLL also receives more COLL token rewards from the product fees generated on the platform, and LP tokens can be staked to provide liquidity to the ecosystem and earn COLL too.
How Does Collateral Leverage Polkadot?
Building on Polkadot, Collateral not only bridges the fiat and crypto worlds but between defi worlds too. By leveraging Polkadot’s cross-chain technology, Collateral is set to also seamlessly connect with Ethereum, Bitcoin, and Binance Smart Chain by Q3 2021, with the possibility of additional blockchain compatibility over time.
Collateral’s defi-to-fiat and defi-to-defi interoperability will open up both multi-chain accessibility within the defi space and utility for those assets in the real world.
Collateral Defi is a Polkadot-based decentralized payment gateway that lets users collateralize crypto to facilitate payment for goods and services. Powered by a P2P network of borrowers and lenders, the protocol also allows users to store, stake, loan and save digital assets, with lenders receiving an APY in return.