JustLend Protocol Deep Dive I Notum
May 26, 20236 min read
In the modern world, banking services are centralized and managed by the government or organizations. Before getting a loan from a bank, people need to pass the checks, meet certain requirements, and wait for approval. This process is rather complicated and does not give every borrower the opportunity to receive financing. However, the world of DeFi, or Decentralized Finance, aims to become an alternative to banking and offers the same range of financial services with a peer-to-peer relationship. With DeFi, there is no need to use third parties and pay for their services, and the transactions themselves and other services are simpler, faster, and safer.
JustLend is a DeFi protocol that provides a secure market for lending and earning on your assets. Thus, using this platform, users can lend or borrow money, receive interest on their assets, as well as use other financial services offered by the platform. In today's review, we will study in detail what JustLend is, how the protocol works, what distinguishes it from competitors, and what are the risks associated with the platform.
About JustLend. What Is JustLen
In simple terms, JustLend is a DeFi protocol based on TRON, which is a kind of marketplace for obtaining loans or providing your assets for passive income. JustLend is also part of the huge JUST ecosystem, which also includes JustStable, JustSwap and JUST Governance.
JustLend Portal describes the protocol as "a platform where users can earn yields through supplied assets, borrow digital assets against collateral, participate in TRX staking, and rent Energy." JustLend is a fairly large platform and as of May 18, 2023, its market size is $3,937,216,788.
JustLend consists of lending pools where interest rates are determined by an algorithm that considers the supply and demand of TRON assets. "On JustLend, each crypto market corresponds to a unique TRON asset such as TRX, TRC20 stablecoin (e.g. USDT), or other TRC20-based tokens." - Medium. Thus, all transactions and interest rates are recorded in the open ledger. Platform users can place their assets on it and receive interest. The advantage of JustLend lies in low risks, which makes it attractive to users.
How Does JustLend Work?
As said, JustLend consists of lending pools where assets are contributed. There are two main types of users in the JustLend protocol, namely suppliers and borrowers. As already mentioned, instead of communicating with each other, they use a protocol. Users who want to receive passive income contribute their tokens to the liquidity pool, and those who want to borrow funds draw it from this pool when they need a loan. Depending on the role, users either earn or pay out a floating interest rate.
The operation of the platform is quite easy to understand, as orders are automatically matched using Smart Contracts. Thus, the two parties do not need to agree on lending terms and interest rates, and lending is done in real-time.
Interest Rates on JustLend
If you have ever used traditional lending, then you know that most centralized financial institutions charge interest rates by the day. DeFi platform JustLend calculates interest based on the time it takes to create a block in TRON, which is often around 3 seconds.
Unlike traditional lending, where the interest rate is often fixed, JustLend has a floating one. The interest rates in the protocol depend on the supply and demand for TRON assets in real time, so it can both decrease and increase. Moreover, JustLend uses a special algorithm to calculate interest rates for each asset.
So, the way interest rates work on the platform is that when demand for a given token drops, excess tokens available for lending result in a lower interest rate. Higher liquidity increases the desire to borrow. In the case of high demand for a particular asset, there are fewer available tokens and the interest rate increases. A decrease in liquidity in this case makes the offer attractive for supplies.
Borrowing on JustLend
If a user wants to borrow on the JustLend platform, it is important to know that the loans are secured. This means that the user will have to purchase jTokens through depositing tokens, which will be used as collateral. Since the cryptocurrency has high volatility, the collateral must be greater than the cost of the loan, which is called overcollateralization. JustLend allows you to use any TRON-based assets as collateral. After these conditions are met, the user can borrow any available asset on the JustLend platform.
The advantage of the protocol, which distinguishes it from peer-to-peer competitors, is that you do not need to specify anything other than the borrowing asset. Because borrowing on JustLend is real-time, you don't need to specify the expiry date. The interest rate on the loan is floating and will be adjusted based on the supply and demand of TRON assets. Also, before borrowing, it is important to pay attention to the fact that different assets have different interest rates, which are also calculated automatically.
How Does JustLend Supply Assets?
When using peer-to-peer platforms, the assets of one user are transferred directly to another at a percentage. JustLend works a little differently and pools the supply of each user, which increases liquidity. Through this process, lenders can withdraw their funds without having to wait for the loan to expire. Since interest rates on the platform are floating and market dependent, JustLend issues jTokens to facilitate the process of earning interest rates. So jToken means a TRC-20 token balance, and users who own tokens can acquire jToken to earn interest.
JST is a TRC-20 token issued on TRON in May 2020. This token is quite popular and is used in many ecosystems and decentralized applications. In addition, JST is the only governance token in the JUST ecosystem, where it performs functions such as participating in the management of the platform, helping to maintain it, paying interest, set interest rates, and more. Moreover, users who own JST can also take part in the development of the platform through voting. Since JustLend is a core element of the JUST ecosystem, the platform also needs a token for decentralized governance.
The maximum supply of JST is $9.9 billion, while the circulation supply is currently over $8.9 billion, i.e., 89.9% of the total supply. The price of the token as of May 18, 2023 is $0.02334. Users can purchase the token on well-known cryptocurrency exchanges such as Binance, OKEx and Poloniex.
Risks Associated With JustLend
All markets on JustLend have a collateral component that shows the creditworthiness of a given amount of jTokens. The lower the ratio, the lower the liquidity. Thus, to minimize the risk of default, borrowers can borrow no more than their borrowing capacity.
Sometimes, the amount of outstanding debt exceeds the collateral component. In such a case, the JustLend smart contract platform provides automatic liquidation, which minimizes the risks of suppliers.
With the growing interest in the DeFi world, protocols like JustLend continue to gain popularity. Secure access to the market, receiving passive income and the possibility of using other financial services of the protocol make JustLend a simple and convenient solution for users. Regardless of whether you are a supplier or a borrower, the platform has fairly low risks. The JUST lending process takes place in real-time and does not require their interaction with each other. However, before using JustLend, keep floating interest rates in mind and do your own research.
Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.