Borrow-Lending System

The DEX provides a comprehensive borrow-lending system that allows users to lend their assets and borrow against their collateral. By default, all deposited tokens are automatically lent to the lending pool, but users can opt out of this feature if desired.

How Borrow-Lending Works

Lending

• Auto-Lending (Default):

  • All deposited tokens are automatically lent to the lending pool
  • Users earn interest based on utilization rates
  • Interest accrues continuously and compounds automatically

• Interest Calculation:

  Supply Rate = Borrow Rate × Utilization × (1 - System Haircut)

  Where:

  • Borrow Rate is determined by the utilization curve
  • Utilization is the ratio of borrowed tokens to total supplied tokens
  • System Haircut is a protocol fee (e.g., 10%)

Borrowing

• Collateral Requirements:

  • Users must provide sufficient collateral to borrow
  • Each token has specific collateral and maintenance factors
  • Borrowing is subject to origination fees

• Borrow Rate Calculation: The borrow rate follows a utilization curve with three segments:

  1. Base Rate: Minimum rate when utilization is low
  2. Linear Growth: Rate increases linearly with utilization up to the kink point
  3. Steeper Growth: Rate increases more rapidly after the kink point

Token Parameters

Each token has specific parameters that control its behavior in the borrow-lending system:

Parameter	Description	Example (BTC)
collateral_factor	Percentage of token value that counts as collateral	0.95 (95%)
borrow_initial_factor	Required collateral ratio to open a borrow	1.2 (120%)
borrow_maintenance_factor	Minimum collateral ratio to avoid liquidation	1.1 (110%)
liquidation_penalty	Penalty applied to collateral when liquidated	0.01 (1%)
origination_fee	Fee charged when opening a borrow position	0.001 (0.1%)

Example: Borrow-Lending Scenario

Let's walk through a typical borrow-lending scenario:

1. Initial Deposit:

   • User deposits 1 BTC (worth $30,000)
   • Collateral factor: 0.95
   • Effective collateral value: $28,500

2. Borrowing:

   • User wants to borrow USDC
   • Borrow initial factor: 1.2
   • Maximum borrow amount: $28,500 ÷ 1.2 = $23,750
   • Origination fee: $23,750 × 0.1% = $23.75

3. Interest Accrual:

   • If utilization is 80% and borrow rate is 10%
   • Supply rate = 10% × 80% × (1 - 10%) = 7.2%
   • Interest accrues continuously on both lent and borrowed amounts

Summary

• All deposits are auto-lent by default (can be opted out)
• Borrowing requires sufficient collateral
• Interest rates are dynamic based on utilization
• Liquidation protects the protocol from undercollateralization
• Each token has specific parameters for risk management