When the borrower takes a collateralized loan, 0.1 ETH will be charged upfront as a liquidation fee. If borrowers repays on time, the fee will be returned. If the loan is overdue, it is used for liquidating collateralized asset .
To value LP collateralized by borrowers, Lend Flare converts equivalent tokens from LP via the Curve interface. For example, how many equivalent DAI can 3pool LP exchange.
Borrowers must over collateralize their assets when borrowing to ensure that the borrowed assets are returned.
Collateral rate = value of collateral assets / value of borrowed assets.
For example, the collateral ratio of BTC is 110%. If borrowers want to borrow 1 BTC, they need to deposit 1.1 BTC worth of Curve LP tokens as collateral asset into the platform.
After the assets are collateralized, Lend Flare will evaluate assets ,calculate the maximum amount that the borrowers can borrow automatically according to the safety threshold interest rate, etc. By this amount, Lend Flare will then withdraw tokens from Compound and give back to borrowers.
When taking a loan, Lend Flare will deduct interest in advance from the loan.
To ensure that the liquidity provided by lenders are not tied up "indefinitely" and reduce the risk of bad debt on the platform, Lend Flare sets a repayment period for borrowers of approximately 3 months, 6 months, and one year. Interest is calculated based on the total blocks, and no interest is deducted if the loan is repaid in advance.
After the borrower has repaid the loan and interest, the collateral asset can be released. Interest accrued during the loan period can be withdrawn at any time. If the loan is not repaid at the end of the repayment period, the LP tokens will be exchanged to the tokens that has been borrowed in order to pay back loans.
3 months blocks= 518400
6 months blocks = 1036800
12 months blocks= 2102400
When borrowers repaid their loans, all the principals and interest will be returned.
The borrowing rate on a Lend Flare loan is fixed at the time of borrowing.
Lend Flare borrowing rate = Compound borrowing rate * Interest rate amplification coefficient
The interest rate amplification coefficient varies according to the utilization rate of funds.
X: utilization rate; Y: amplification factor