Borrowing Protocol

  1. In the case of Borrowing Smart Contract, there are two major actors:

    1. Lenders: In this case, the reserve of USDC is initially created by Dexponent.

    2. Borrowers: Users who hold clETH and want to borrow USDC from the maintained reserve.

  2. Borrowers can access pooled funds by providing collateral in LST (clETH). The value of the collateral is always higher than the value of the funds being borrowed from the reserve.

  3. As funds are borrowed from the reserve, the amount of funds available decreases which raises the interest rate and vice-versa.

  4. Target Utilization:

    1. The target utilization of the funds is set to 80% by default.

  5. Interest Rate:

    1. The base interest rate is set to 6% and the Interest Rate Constant is set to ‘1’ to start with.

    2. The interest rate is calculated and adjusted based on the utilization of the funds in the reserve.

    3. The interest rate of the user is fixated on the interest rate at which the user borrowed.

    4. Once the utilization of the reserve exceeds a set target utilization, the interest rate changes as per the below formula:

    New Interest Rate = Base Interest Rate + (Interest Rate Constant * (Current Utilization - Target Utilization))

  6. LTV (Loan-To-Value) Ratio:

    1. The base LTV is set to 70% and the LTV constant is set to 0.2 to start with.

    2. The current LTV is calculated and adjusted based on the utilization of the funds in reserve.

    3. Once the utilization of the reserve exceeds the Target Utilization, the LTV changes as per the formula:

      New LTV = Base LTV - (LTV Constant * (Current Utilization - Target Utilization ))

  7. Borrowing Process: Since the collateral amount is always higher than the borrowed amount, the sanity of the reserve is maintained.

  1. Repayment Process:

    1. The current repayment happens only on the full repayment amount. Partial repayment is not possible.

    2. Only the wallet that was used to take the loan can make the repayment.

  1. Liquidation of funds:

    1. If the user fails to repay the loan OR the Repayment amount(Borrow Amount + Interest Accumulated) exceeds the set threshold, liquidation of the loan takes place and clETH is transferred to the clETH pool on the smart contract.

    2. The Liquidation threshold is for now a constant value at 90%.

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