What is Port Finance?
Tired of watching your hard-earned dollars turn into Monopoly money faster than you can say "quantitative easing?" Well, fear not, because DeFi is your safe space to maintain and multiply your wealth. With returns that make your grandma's cookie jar look like chump change, you can protect your savings from inflation and the risk of confiscation thanks to Port Finance.
Port Finance is the lending and borrowing protocol that says "no" to greedy bankers and bloodsucking third parties. Here, it's you, your crypto, and a neutral liquidation engine. With Port Finance, the only fees you will have to pay are for borrowing and conducting flash loans – paid in SOL. You see, the benefits of using a DeFi protocol is that every action is mediated by smart contracts. These cold hearted automated pieces have no biases, and more importantly, get the job done.
Explaining Port Finance goes beyond its code, it requires looking at the entire picture. Like you've heard before, using DeFi protocols such as Port Finance requires no KYC. Anyone can lend and borrow as they wish – rules are automatically enforced and transparently displayed. There is, however, a human component that dictates along with the code: Port DAO. It is a community for PORT token holders with the sole interest in helping Port Finance succeed. Any token holder can get involved in the governance process, making sure the protocol stays credibly neutral.
The price of PORT is tightly correlated to the protocol usage. This is because PORT holders are entitled to a portion of the trading fees. This means that PORT holders have a direct incentive to improve Port Finance by adjusting its fees and parameters to accommodate demand. While the Port Finance team has arguably the technical knowledge, even they have to check with the PORT token holders and together agree on the correct course of action.
One aspect that rests in the had of the Port Finance team is security. As the architects of the protocol, their duty is to keep Port safe from hacks and exploits. Since its launch in 2021, Port Finance has never been hacked. Perhaps, the protocol hasn't grown enough in TVL to become a target for hackers or the team really does its job well. Hopefully we will never find out.
How does Port Finance work?
Port Finance is a money market protocol built on Solana. The protocol runs a liquidation engine that ensures borrowers and depositors can collaborate in a mutually beneficial way. At first glance, Port Finance looks like your average lending/borrowing protocol. The team, however, plans to launch a host of new features such as cross-chain bridge integration, an orderbook trading experience, and a slick dashboard.
The core products of Port Finance are variable rate lending and fixed rate lending. We will explain how each one works.
Port Finance Variable Rate Lending
Variable rate lending is the lending model used by the majority of DeFi protocols. Port Finance uses Aave's interest rate model where the rate is determined by the utilization of the protocol.
The interest rate model on Aave is a dynamic system that adjusts the interest rates based on the supply and demand for a particular asset. In other words, the interest rate will change depending on how much of a particular asset is being borrowed and how much is available to be lent.
Port Finance uses this exact system called "interest rate curve" to determine the interest rates. The best way to explain how it works is in practice: if the supply of a particular asset is high and there is less demand for borrowing it, the interest rate will be lower. However, if the demand for borrowing the same asset is high and the supply is low, the interest rate will be higher.
The interest rate model on Aave also takes into account the risk associated with borrowing and lending a particular asset. The riskier the asset, the higher the interest rate will be, to compensate the lender for the increased risk.
The liquidation engine of Port Finance calculates the liquidation threshold in real time and determines how much users can borrow. Each asset has its own liquidation threshold based on the underlying risk of the asset. For example, stablecoins have higher liquidation threshold than most crypto assets because their inherent low volatility. Lower liquidation threshold means that small changes in the value of the collateral will require users to add more collateral or risk having their position liquidated.
Concretely, say that a user deposit $100 worth of SOL and borrow $85 worth of assets, according to the currently liquidation threshold of 90%, the user is subject to liquidation if the value of the assets that they borrow has increased by $90.
Liquidations are done by specialized actors (usually bots) that see the value of the collateral drop below threshold. For taking the risk, liquidators get rewarded with a small portion of the collateral.
As an example, if the user has put in $100 worth of SOL and borrow $85. If the value of the borrowed asset has reached $90. The liquidator comes in and pays $50 worth of SOL and it will be able to get back 50 * (1 + 2%) = 51 USD worth of SOL.
Port Finance Fixed Rate Lending
Port Finance has come up with its unique feature for enabling fixed rate loans. As of Q1 2023, this feature is still in testing, but the team has already laid out its mechanics.
Fixed rate lending is a loan agreement between the borrower and lender that specifies a fixed interest rate for the entire term of the loan. This means that the borrower will pay the same interest rate throughout the life of the loan, regardless of changes in market conditions.
In order for this model to work, Port Finance uses two tokens: Principal Tokens and Yield Tokens.
Principal tokens (ppTokens) represent a one-to-one synthetic asset of the supplied token, while Yield tokens represent the variable yield gained underlying product over the lending duration.
Principal tokens are redeemable for the underlying asset after the term period of the lending is over, and therefore, will naturally trade at the discount relative to the underlying asset.
Yield tokens are redeemable for the interest rate earned from depositing the underlying asset from the start to the end of the lending duration after the lending period. Therefore its price will be affected by the current variable interest rate.
How to make money on Port Finance?
Port Finance is among the best dapps where Solana users can borrow and lend crypto. Using these basic mechanisms, one can either earn interest on his deposit or increase his buying power without selling the underlying collateral. One of the advantages with using Port Finance is the clean user interface. With all the data at hand, you can easily see the liquidation threshold for your loan as well as the accumulated APY from lending.
Port Finance Lending
Let's start with the easy one, lending. There's no better way to earn a passive income than lending your crypto to other traders – assuming they pay back the loan. Luckily, Port Finance has a variable threshold for liquidation to ensure it's advantageous for both parties to use the protocol. Ultimately, Port Finance ensures liquidations happen fairly.
Because you are taking a degree of risk when loaning, it's normal to get rewarded proportionately. Which is why you look for the Deposit APY on the Port Finance dapp to identify the highest paying pools. For example, stablecoin and liquid asset pools offer a lower APY due to their lower volatility. On the other hand, this kind of assets result in a higher borrowing rate: more demand means more interest paid for those who supply.
To lend on Port Finance, follow these steps:
1. Open the Port Finance app
2. Navigate on the "Lending" tab on the left of the window
3. Choose the asset you'd like to supply
4. Input the amount you'd like to supply
5. Click Deposit
6. Approve the transaction
7. Congrats! You have made your first deposit with Port Finance
As a lender, you will never have to worry about doing the liquidation yourself. This process is handled automatically by the liquidation bots. All you have to do is sit back, relax, and let the APY pile up. Make sure to check the market conditions from time to time in case a better opportunity arises. You can even swap your assets directly via the swap feature on Port Finance.
Port Finance Borrowing
This feature is for the risk takers. Borrowing money represents an effective way to increase your borrowing power without having to sell your underlying crypto. Why is it risky? For one, you have to ensure your collateral doesn't fall below the liquidation threshold. Then you will have to supply more collateral or risk losing the initial collateral to pay back lenders.
Ideally, one should be able to make enough money from his borrowing strategy to pay back the interest on the loan, in addition to the profit from the trade itself. It is tricky because the crypto markets are usually highly volatile, and the trade can go both ways. If the price of the underlying collateral drops before you execute the trade, it can result in losing the opportunity and part of the collateral. It is recommended to keep more collateral at hand to maintain your borrowing position even if the market goes against your plans.
The opposite scenario can occur. Let's say you deposit $100 worth of SOL to take a loan, and the value of SOL increases. In this situation, your liquidation threshold is lowered, and you can borrow even more USDC. Even though it sounds good in theory, remember that a 50% swing in market price is a "normal" day in crypto.
To borrow on Port Finance, follow these steps:
1. Open the Port Finance app
2. Navigate on the "Lending" tab on the left of the window
3. Before you are able to borrow, you will firstly have to deposit your tokens and use that asset as your collateral to borrow. Tick the "Set as Collateral" option
4. Once you are done, head over to the borrow tab and determine how much you would want to borrow.
5. Click Borrow
6. Approve the transaction
7. Done!
You can now check the health of your borrowing position on the right side of the Port Finance dapp. With the extra buying power, you can farm these tokens, lend on various DeFi protocols on Solana, or just have exposure to the borrowed tokens and sell at the right time. What matters is that you are aware of the underlying risks of liquidation. At the end of the day, you should be able to repay the interest on the loan and have made a profit from your strategy. Good luck!
Price Prediction for Port Finance — Can it hit $1000?
Buying and hodling PORT — the native token of Port Finance — is one way of potentially making money on Port Finance.
By looking at its current price, it’s natural to think about the chance of PORT hitting $1000 per token. This can happen sooner, or way in the future, and is determined by a couple of ever changing factors.
Let’s examine the potential growth of the PORT token by analyzing its tokenomics. PORT’s current market cap sits comfortably at ${MARKET_CAP}. With {CIRCULATING_SUPPLY} PORT tokens being in circulation today, that means a price of {PRICE} per PORT.
How did we come to that calculation? It’s quite easy, the price of an PORT token is equal to its current market cap divided by the number of tokens in circulation. Dividing ${MARKET_CAP} by {CIRCULATING_SUPPLY} gives us a result of {PRICE} for each PORT coin.
By changing the order in the simple formula above we can use it to calculate other things as well. This helps us a lot because we can deduce the market cap of PORT at different token prices. Then, we can use the result to compare it to the current state of the network and see what would be required for PORT to hit that price.
At a price of $1000 per token, that means the current market cap of PORT would equal ${{CIRCULATING_SUPPLY} * 1000}. Remember that we arrived at this number by multiplying the amount of circulating tokens by $1000.
Now let’s shift our attention to the fully diluted market cap.
Some blockchains may have their tokenomics built in a way that only a small percentage of tokens are circulating at the beginning. This can be misleading because we don’t have the full picture and only take into account the current number of coins released in the market.
The fully diluted market cap represents the total value of a coin if all tokens were in circulation. PORT’s whole supply of tokens is {MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} PORT which means that no more coins above that number will ever be created.
These tokens are not created at the discretion of a specific entity. They are created automatically by the network to reward different actors that keep it secure.
How does this impact the price of PORT? Taking into account the current price of an PORT token, that would result in a fully diluted market cap of ${MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY * PRICE}. PORT coins that have been burned are not taken into consideration because they have been permanently removed from circulation.
Whether it seems gigantic or not, the number we came to above only takes into account the current price of an PORT token. Doing the same calculation but with a price of $1000 gives us a result of ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 1000} for the PORT protocol fully diluted market cap.
These are all crucial details to know when calculating if PORT can reach the price of $1000 per token. If the diluted market capitalization is way too high, the token has little room left to grow. Blockchains in general have no cap on the value they can reach, whether that number seems possible it’s totally up to you.
The future of PORT depends solely on its growth as a network used by tens and hundreds of millions of users.
If you’re looking to add some PORT to your portfolio, the most trusted places to get some are Binance and Coinbase.