How it works
Deposit and Withdraw
The Lend&Borrow service allows users to freely deposit and withdraw assets. Depositing assets in the service provides others lendable liquidity and depositors can earn passive interest upon their deposit. There are no limits on deposit amounts, and interest for each users are proportional.
Supplied assets can be used as collateral to borrow other types of assets, with the loanable amount determined by the collateral's LTV. Users are given investment opportunities such as borrowing and leveraging without having to sell the assets, but they should monitor their financial status through the Status Monitor to avoid liquidation in case they are unable to repay the loaned assets or if the value of collateral falls in value. Withdrawals may be restricted if the Status Monitor is in the ‘Risk’ stage or if the loan has not been fully repaid.
Interest on deposited asset
The Annual Rate of Return for a supplied asset refers to the expected interest earned over a year by depositing the asset. The rate is subject to change according to the rate of the total borrowed amount and the total deposited amount of the protocol(a.k.a the utilization rate), and it is compounded block by block.
Users who provide liquidity by depositing assets into the service can earn deposit rewards in the form of a portion of loan fees paid by borrowers. For example, if a user deposits $100 worth of WEMIX and the annual yield is 2.5%, they can expect to earn approximately $0.0068 per day. The budget income is calculated and updated regularly based on the demand and supply of deposit and loan assets.
Borrow and Repay
Users can use their extra assets as collateral to lend other assets through Lend&Borrow. The assets deposited in the service are accepted as collateral based on the Loan-to-Value(LTV) ratio, determining the amount of assets that can be borrowed. The LTV indicates the level at which the user's deposited assets are approved as collateral. The rate is set to ensure that the value of the deposited assets is always higher than the value of the loaned assets, avoiding potential financial risks such as a sudden decrease in the value of the collateral assets or the inability to repay the loan.
The user can borrow and repay repeatedly based on deposited assets and collateral balance. As the value of the loaned assets approaches the value of the collateralized assets, the Status Monitor can change from 'Safe' to 'Caution' or 'Risky' and, worst case, to 'Liquidation,' depending on the stage of the Status Monitor. Users can adjust the loan-to-collateral ratio by repaying a portion of the loaned assets and stabilize their assets by depositing additional funds.
For instance, if WEMIX has an LTV of 75%, and a user deposits $100 of WEMIX, they can loan $60 WEMIX$. If the price of WEMIX decreases and the price of collateral falls from $100 to $80, the protocol will activate the liquidation process and require the user to repay 50% of the $60 WEMIX$ loan.
To avoid liquidation, users should constantly monitor their financial status through the Status Monitor and supply more collateral or repay their loans if the risk level is high. The Status Monitor shows the relationship between the value of the loaned assets and the value of the collateral assets.
Amount available for a loan
To protect users from the dangers of liquidation, the protocol allows users to borrow up to 80% of the maximum loanable amount. The maximum loanable amount is decided by the deposited balance and the user's current loan.
: The LTV of the asset
Interest on borrowed asset
The Annual Rate of interest on borrowed asset refers to the interest charged when borrowing assets from the service for a year. The interest rate is variable and increases block by block through compounding. Borrowers must pay back the borrowed assets along with the loan fee when repaying the loan. The fee rate is subject to change based on the demand and supply of deposit and loan assets in the market.
Users who have loaned assets from the Service are required to pay loan interest upon repayment.
A user who loans $100 worth of WEMIX will need to pay interest on their loan, calculated based on the loaned amount of $100 WEMIX and the loan fee rate. Currently, the loan fee rate is set at 2.5% for the budget year, but it may fluctuate based on changes in demand and supply for deposit and loan assets. These changes are tracked in real-time and reflected on a block-by-block basis.
Liquidation
The Lend&Borrow service allows users to borrow different assets against collateralized assets and has a flow of funds that pays the depositors a portion of the loan fees the borrowers pay. However, under certain circumstances, some users may need help to repay their loaned assets, or the size of their loan may exceed the size of their collaterals. If these users grow in numbers, the protocol will earn less interest on loans and insufficient funds to pay depositors, forcing the protocol to charge exorbitant lending rates. For this reason, the protocol needs "liquidators" to redeem the unpaid loans on behalf of the debtors to maintain a healthy flow of funds.
As mentioned above, if a user is unable to repay their loaned assets through the service before the status reaches 'liquidation', or if the value of the loaned assets is greater than the value of the collateral assets, the platform's protocol will initiate a liquidation process. In this process, a liquidator will repay a portion of the loan and acquire a portion of the user's collateral at a discounted price. The liquidator earns a return by selling the collateral, while the platform charges a fee for the liquidation service, which is used to maintain the stability and health of the Lend & Borrow market.
During the liquidation process, the liquidator can repay up to 50% of the borrower's loan and purchase collateral assets at a 10% discount for the amount redeemed, meaning that the liquidator can redeem the borrower's loan and earn a 10% profit in return. The liquidator purchases a portion of the borrower's collateralized assets, of which 3% is paid to the platform as a liquidation fee.
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