Lending

In the financial ecosystem of our platform, users are empowered to deposit collateral to subsequently borrow funds. This raises the question: from where do these borrowed funds originate?

Individuals who hold surplus capital can contribute these funds to the money market's vault, enabling others to access them as loans. When these individuals make deposits into the money market, they are given tokens known as Compounding Assets, or cAssets. For instance, a deposit of kUSD results in the receipt of ckUSD, while a USDC deposit yields cUSDC. These cAsset tokens symbolise the depositor's entitlement to a portion of the vault's contents for the specified currency, in addition to the accrued value from all active loans in that currency.

As loans accumulate interest, the valuation of the respective cAsset tokens appreciates, rendering each token an instrument of yield generation. Like conventional tokens, cAssets can be transferred, acquired, and sold. Upon depositing funds into the vault, a user's contribution becomes a part of the vault's aggregate value. For illustration, if the vault's worth is 100 kUSD and an individual adds another 100 kUSD, their contribution now constitutes 50% of the vault's total valuation. The quantity of tokens dispensed to the depositor reflects the same proportion, ensuring that the newly issued cAssets denote 50% of the total circulating supply. Thus, if the initial supply of ckUSD stands at 100, and a user enhances the vault by an additional 100 kUSD, the protocol allocates 100 new ckUSD to the depositor.

As funds from the vault are borrowed, the interest generated from these loans increases the vault's value. For instance, if the entire 200 kUSD is loaned out and the loan balance increases to 220 kUSD, the 200 ckUSD represents a claim for the 220 kUSD.

How To Lend Collateral

To engage in lending, users navigate to the Lending page, which catalogues the available assets for borrowing. Here, users can review the amount they have deposited, its USD valuation, the base token's price, and the prevailing interest rate applicable to loans.

It is crucial to note that no interest accrues in the absence of loans. However, the protocol places part of the DEX's trade fee income in borrowable currencies into the vault.

Redeeming cAssets

To redeem their cAssets, users initiate a request by selecting the Redeem option. A dialog box lets them specify the quantity of cAsset tokens they wish to redeem, which places their request in a queue for execution at each block's conclusion. The redemption request is executed in full if the vault possesses sufficient funds to fulfil the request. Otherwise, attempts to satisfy the request persist with each subsequent block until completion.

For users who wish to shorten the waiting time for their cAssets to be redeemed, they can offer a higher queue fee. The protocol prioritises redemption requests based on the queue fee, starting with the highest. Deducted from the redeemed tokens, this fee is partially allocated to the protocol, with the remainder bolstering the vault's reserves. Consequently, a reduction in the vault's value is mitigated relative to the supply of cAsset tokens, enhancing their worth. Hence, users opting for quicker redemption inadvertently benefit the broader user community, primarily when multiple users simultaneously make redemption requests with higher queue fees, rewarding those who choose to wait.

Borrow limit

Assets deposited into the vault are made available to borrowers. As a result, lenders are temporarily unable to redeem their cAssets; however, the value of their cAssets appreciates over time. To ensure that not all deposited funds are lent out, each currency has a borrow limit set at 70%. This means new loans can only be taken as long as the utility rate is below 70%, leaving a buffer to support redemptions. When cAssets are redeemed and the utility rate exceeds 70%, the interest rate rises sharply. This spike in interest serves a dual purpose: it incentivizes new deposits and encourages borrowers to repay their loans.