Orchai Protocol
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Borrowing

Tokens can be borrowed from the money market by creating a loan position with whitelisted sAssets as collateral. An account can only own a single loan position, though a user may create more loan positions with the use of multiple accounts.
sAssets collaterals are locked to open a loan position. Users are allowed to lock multiple sAsset types to a single position, diversifying collateral price exposure

Borrow Limit

Borrows can be made until the user's liability reaches their position's borrow limit. The borrow limit is yielded as the sum of locked collateral value, times the maximum LTV ratio of collateral:
borrowLimit=∑(amountLocked×sAssestPrice×LTV)borrowLimit = \sum (amountLocked \times sAssestPrice \times LTV)
One should observe that the borrow limit fluctuates with the oracle-reported sAsset price. Loan positions with a liability higher than their borrow limit are subject to liquidation, where their collaterals are converted to stablecoins to repay their liabilities.
To prevent liquidation, borrowers can lock additional collateral to their position and increase their borrow limit. Collaterals can also be unlocked and withdrawn from a loan position, as long as the borrower's liability does not exceed the position's borrow limit.

Borrowing Interest Rate

Tokens borrowed from a market all follow a unified, algorithmically determined borrow rate. The applied borrow rate constantly adjusts based on the market supply and demand, set to increase as a function of the utilization ratio.

Utilization Rate

Utilization Rate
(U)(U)
is an indicator of the availability of capital within the pool, at time
tt
is caculated as:
U(t)=totalBorrowed(t)totalDeposited(t)U(t) = \frac{totalBorrowed(t)}{totalDeposited(t)}
A high utilization rate indicates that a lot of borrowing has occurred, while a low ratio indicates the opposite.
The interest rate model manages liquidity risk in the protocol through user incentives to support liquidity:
  • When capital is available: low-interest rates to encourage borrowing.
  • When capital is scarce: high-interest rates to encourage repayments of debt and additional supplying

Interest Rate Model

Interest Rate Model tends to be a cost-effective way for the Pool to run itself. The parameters of the pool will aid in the adjustment of borrow and deposit rates to a balanced and reasonable point.
If Utilization Rate approaches 100%, there will be a scarcity of tokens in the Pool. The borrower will be unable to borrow at this time, and the lender will be unable to withdraw funds from the Pool. To avoid this, the interest rate curve is split into two parts around an Optimal Utilization Rate
(Uoptimal)(U_{optimal})
. Before
UoptimalU_{optimal}
the slope is small, after it begins rising sharply.
Specifically, the borrow interest rate
B(t)B(t)
is defined by:
  • If
    U(t)<Uoptimal U(t) < U_{optimal}
    then
    B(t)=B0+U(t)UoptimalBslope1 B(t) = B_0 + \frac{U(t)}{U_{optimal}}B_{slope1}
    ​
  • if
    U(t)>Uoptimal U(t) > U_{optimal}
    then
    B(t)=B0+Bslope1+U(t)−Uoptimal1−UoptimalBslope2 B(t) = B_0 + B_{slope1} + \frac{U(t) - U_{optimal}}{1-U_{optimal}}B_{slope2}
    ​
The interest rates have a kink in them: they sharply change at a certain point. A variety of protocols use interest rates like this, including Aave and Compound. As users mint, redeem, borrow, repay, or liquidate tokens, the interest rate changes with the utilization rate
UtU_t
. As a result, it's also known as a variable interest rate.

Borrowing capacity

Borrowing capacity of a loan position is a ratio that indicates the user loan position's liquidation riskiness, which is calculated as the following formula:
borrowCapacity=totalBorrowedAmountborrowLimitborrowCapacity = \frac{totalBorrowedAmount}{borrowLimit}
When
borrowCapacityborrowCapacity
is higher then 100%, a portion of the user's collateral can be liquidated.
To improves user's collateral safety and borrow position, user can:
  • Repay a portion or the full amount of the borrowed amount
  • Provide more collateral