The decentralized finance (DeFi) landscape continues to see the entrance of new services to help support and maintain a high growth rate. The latest addition to this space is Linear Finance. From a distance, this project makes it easy to transition from traditional finance to DeFi-powered platforms.
With the birth of these new platforms, the major hindrance to their uptake has been smoothly convincing those accustomed to traditional finance that the other side actually looks greener.
The project is led by Drey Ng and Kevin Tai. Drey has a Master of Science in Computer Science from the University of Hong Kong. He also happens to be the chief product officer at Liquefy, a technology solutions company guiding innovative businesses through digitization and blockchain technology.
Kevin has a Master of Business Administration in Corporate Finance and Real Estate from Harvard Business School. His past roles include being vice president of structured products at Credit Suisse.
Linear Finance seeks to reconcile traditional finance with distributed finance. Its core areas revolve around having a Delta-one approach to synthetic assets.
What is Linear Finance?
Linear is a distributed protocol that is compatible with multiple chains and majors with synthetic assets. Its platform is non-custodial and works towards democratizing and enhancing inclusiveness to both traditional and digital investment assets. One of the ways the project achieves this is by enabling investors to save on transaction fees and reduce the time it takes to bring an investment position to life.
Also, Linear guards investors against high asset prices by providing them with fair market value. The network is built on Ethereum with activities on the platform powered by LINA, an ERC-20 token. With most DeFi platforms built on the Ethereum blockchain, the protocol maintains access to this ecosystem by building synthetic assets on chains that are EVM (Ethereum Virtual Machine) compatible like Binance Smart Chain (BSC).
The project’s white paper stresses on delta-one and synthetic assets. With the project dealing with derivatives, delta-one means that a change in the price of the underlying asset ignites the same change to the product.
Synthetic, on the other hand, are assets that derive their value from other assets. Examples of synthetics include futures and options. In the crypto world, synthetic assets enable investors to interact with cryptocurrencies without necessarily holding them.
These assets are also known as liquids because they can easily be converted to cash. The Linear protocol supports liquids in cryptocurrencies, crude oil, coffee, market indices, e-sports, among others (see below).
Use cases of Linear Finance
Layer two scaling solution
The Majority of DeFi systems tend to use Ethereum. However, other established blockchains are striving to get a piece of the pie. But, with the incompatibility among decentralized systems, there’s a need for a bridge.
Linear acts as the chain that brings all the networks together. As a layer two solution, the protocol can connect all the major chains while mitigating the risks involved in such a process.
By providing cross-compatibility, the project can offer:
- Low gas fees
- High transaction speeds
- Fast price discovery
Low Gas Fees
Since transactions are not directly done on the Ethereum blockchain, the decentralized delta-one protocol estimates that its users save up to 90 percent on gas fees when using the network.
High Transaction Speeds
Transactions done on the Linear protocol, from retrieving, staking, buying, to burning have near-instant settlements. Also, the protocol is ideal for use in circumstances where failed transactions should be avoided.
Fast Price Discovery
The platform employs oracles with block times of mere seconds. This allows traders and users to interact with fresh prices in real-time. Consequently, there is fairness, safety, and transparency among users.
Linear Finance Token (LINA)
LINA is used on the network to back collateralized debts, as well as physical and digital assets. Holders of the token can access Linear USD (LUSD) which can be used to interact with Linear liquids on the Linear exchange. Additionally, token holders contribute to governance decisions such as which assets to be listed, and distribution models.
Other uses of LINA include, but are not limited to:
The token is used as the base collateral when creating synthetic assets using Buildr, a blockchain-based platform for managing liquids. While the collateral needs to be a different cryptocurrency such as Ether (ETH), Linear takes a hybrid approach where 80 percent of the collateral consists of LINA and 20 percent is Ether or any other cryptocurrency.
Earning Staking Rewards
LINA stakers earn rewards on either pro-rata exchange fees or an inflationary reward basis. For the first option, the rewards are attained on a weekly basis, and the calculation is done while considering the stakers’ pledge ratio.
Other ways stakers earn rewards are via yield farming, a positive variation of the pledge ratio, and providing liquidity on the Linear pool.
Linear Finance and Tellor
Linear is working with Tellor to implement Ethereum oracles. Simply put, an oracle provides verified external data to a smart contract.
Tellor uses this to provide high-value off-chain data through hashing and data signing. Tellor recently launched on the Linear network. Teams from both platforms are working to ensure the security of LINA and other crypto prices on the Ethereum platform.
The exchange powers the trading of various synthetic assets. It has almost-instant transaction times with the help of blockchain technology. Linear.Exchange utilizes the infrastructure of Ethereum and the high transaction-times of other decentralized systems.
Furthermore, it supports commodities, cryptocurrencies, market indices, foreign exchanges, thematic exposures, and looks to expand to the equities market. This array of offerings not only minimizes the risk involved in investing in cross-assets but also increases the choices of investable assets. It provides users with the ability to manage their own exposures plus an added functionality for analytics.
Linear is governed by a distributed autonomous organization (DAO) known as LinearDAO. It is responsible for handling essential platform designs, as well as system parameters like LINA rewards and frequency, pledge ratio, the introduction of new functionality, technology roadmap, and split of transaction fees.
As more projects strive to make the DeFi world more attractive to those in crypto and traditional finance, Linear Finance has already made a dent in the space. Offering a complete platform including an exchange with cross-chain compatibility, the protocol brings a major difference in the DeFi scene.
Furthermore, its low fees, high transaction times, and fast price discovery allow users to have a real-time connection with their tracked assets. Its delta-one approach means that traders get the absolute value of the underlying asset since there is a one-to-one connection to value and/or price movement.