CoinMarketCap Academy takes a deep dive into Linear Finance — a non-custodial asset trading protocol.
Linear Finance (LINA)
is a non-custodial
compatible, delta-one asset protocol. Its goal is to enable fair access to digital and traditional assets for all users. Linear Finance achieves that by offering different derivatives
for trading, both in spot
markets. It is built on Ethereum
and compatible across different blockchains, thereby opening access to its trading and staking
functionality to different ecosystems. Users can build and manage their spot or portfolio exposures with innovative digital and traditional derivative
The protocol’s foundation is its “collateralized debt pool,” where various digital and real-world assets may be utilized as collateral. It functions as the backbone of its liquidity pool
. When a user adds collateral to the pool, they can mint
Linear USD (ℓUSD), which is the protocol’s native stablecoin
. It is used to trade synthetic assets
on Linear Finance. The platform is governed and secured by its native token
, which can also be used for governance
The value proposition of Linear Finance is the democratic access of traditional and digital assets to all users through its decentralized trading platform. The cross-chain compatibility is a design choice to enhance the appeal of Linear Finance across different blockchain ecosystems. Users can trade different synthetic assets and stake the native token following the process outlined below.
1. Users pool their digital or real-world assets
into the collateralized debt pool, which acts as a counterparty and guarantees the system's stability.
2. Next, they can then mint Linear USD (ℓUSD)
, which can be used to purchase synthetic assets from the native exchange. The amount of ℓUSD that can be minted depends on the amount of collateral the user has placed in the pool. The user is required to pledge collateral equal to or above a certain percentage of the value of the asset being minted. The percentage differs depending on the volatility of the underlying asset.
3. Once the user has minted ℓUSD, they can purchase synthetic assets, such as derivatives of digital currencies, stocks, bonds, commodities and other assets that can be represented on the blockchain. This process is done through the Liquids Exchange, which offers fair market value prices with zero slippage
4. Linear's protocol token, LINA, is used as the governance token
for the platform. It enables users to vote on distribution models, oracle selection, pledge ratios and the assets to be listed on the platform.
5. Finally, Linear offers an innovative incentive program that rewards active users through liquidity mining
. Users who provide liquidity to the Liquids Exchange are rewarded with LINA tokens, which serve as economic incentives to encourage active participation and contribution to the ecosystem.
Wide Range of Assets
The platform provides users access to a broad range of traditional and digital assets without issues of slippage and settlement time. Linear Finance’s focus on enabling users to mint synthetic assets with zero slippage using peer-to-peer contracts is an innovative approach to solving financial problems in a decentralized framework.
Non-Custodial, Cross-Chain Compatibility
As a non-custodial, cross-chain compatible platform, Linear Finance is available on Ethereum
and other blockchains in the future.
Collateralized Debt Pool
The backbone of Linear's protocol is its collateralized debt pool, which supports various digital and real-world collateral assets. Users can provide collateralized assets to the debt pool and then mint Linear USD (ℓUSD), which can be used to purchase synthetic assets from the platform's native exchange. The collateralized assets are transformed into a pool for instantaneous liquidity and act as a counterparty, guaranteeing the stability of the system.
Collateral Pledging Mechanism
Linear's collateral pledging mechanism enables users to pledge collateral up to a ratio above 100% to mint liquid assets (Liquids). This mechanism stabilizes the system, as it does not allow volatile assets that were pledged as collateral to trigger a liquidations cascade. Furthermore, the LinearDAO in charge of the protocol’s governance
is tasked with the long-term optimization of the protocol’s pledge ratio to further optimize its functionality.
The co-founders are Drey Ng and Kevin Tai, who have extensive experience in the fintech industry and investment banking.
Drey Ng is also the co-founder and chief product officer of Liquefy, a platform that offers access to tokenized securities
. Kevin Tai was the vice president of Credit Suisse in Hong Kong, a prominent global wealth manager and investment bank. They are supported by a small team of developers, designers, marketers and community managers.
Linear Finance managed to attract investments from leading crypto VC funds
and exchanges, such as Huobi
, CMS, Moonrock Capital and many others.
Linear Finance has two main tokens: LINA and LUSD.
LINA is the native token of Linear Finance that serves multiple purposes. First, it is used as collateral to mint LUSD, the protocol’s stablecoin
. Users can stake LINA tokens or a mixture of LINA and other major cryptocurrencies, such as ETH
, to build LUSD using Linear Buildr. Second, it is used for protocol governance. LINA holders can vote on proposals and initiatives that affect the development and direction of Linear Finance. Finally, LINA functions as a reward and incentive token. Users can earn LINA tokens by staking them, providing liquidity to Linear Vault, or trading Liquids on Linear Exchange.
LUSD is the stablecoin of Linear Finance that tracks the value of the US dollar. It is used as the base currency to trade Liquids, the synthetic assets of the protocol. Users can access a variety of Liquids based on spot cryptocurrencies, commodities, forex and thematic indices with nearly-instant confirmation time and immediate finality. According to Linear Finance, Liquids have "unlimited liquidity
and no slippage
," thanks to the cross-chain swap functionality of Linear Finance.
Linear Finance has a total supply of 10 billion LINA tokens, of which 5.34 billion are currently in circulation. The token distribution is as follows:
- 20% for team and advisors
- 20% for ecosystem fund
- 15% for private sale
- 15% for public sale
- 15% for staking rewards
- 10% for reserve fund
- 5% for community rewards
The Linear DAO consists of two main components: the Linear council and the Linear community. The Linear Council is a governing body composed of seven community members who are elected by LINA holders for a fixed term. The council is responsible for reviewing, approving and executing proposals submitted by the community. The council also has the power to veto proposals that are deemed harmful or malicious to the protocol.
The Linear community is the collective group of LINA holders who can submit and vote on proposals using their LINA tokens as voting power. The community can propose changes to various aspects of the protocol, such as transaction fees, collateral ratios, liquidation
mechanisms, insurance fund allocations, new Liquids and more. It can also vote on the members of the council and hold them accountable for their actions.
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