Skip to main content

Borrow

Borrowing at fixed rates in Tenor requires users to overcollateralize their loans; the value of the collateral determines the maximum amount of their loan. To borrow, a user can either place a market order (swapping instantly) or a limit order.

Market Order​

Users have the ability to swap instantly by placing a market order instead of waiting for their limit order to be filled.

To borrow, a user must first deposit collateral in the Tenor contract. Then, the protocol mints an offsetting pair of Fixed Tokens and Fixed Debts. The Fixed Debts simply keep track of the borrower's debt in the protocol.

The borrower can then use an interest rate AMM to swap his Fixed Tokens for Loan Tokens. The Loan Tokens obtained by swapping the Fixed Tokens can then be redeemed for the underlying currency (e.g., USDC) using the underlying Morpho money market and are sent to the borrower's wallet.

Market Order Fees​

When lending by placing a market order, users pay a fee for acting as liquidity takers from the Tenor Pools. The fee corresponds to the the annualized rate of an interest tick (e.g., 0.25% annualized if the tick size is 0.25%), and is added to the interest rate at which the user borrows. For example, if the pool's market rate is 5% and an the pool's interest tick is 0.25%, borrowes using a market order will borrow at 5.25%.

Example​

To illustrate borrowing using a market order, here is an example of a user who wants to borrow 100 USDC in a 1 year USDC Fixed Rate Pool with the following outstanding liquidity distribution:

The user will first deposit collateral; 500$ in ETH in this example. The protocol will mint an offsetting position of Fixed Rate Tokens and Fixed Debt Tokens corresponding to the amount of the loan multiplied by the nearest tick with liquidity (9% in this case) plus the swap fee (1% in this case). The borrower will mint 110 Fixed Rate Tokens and 110 Fixed Debt Tokens.

The user’s 110 Fixed Tokens will be swapped in the Fixed Rate Pool at the lowest tick with liquidity (9% in the example). Once the trade is executed, the borrower will add 110 Fixed Rate Tokens to the pool at the 9% tick and remove 100 USDC.

The end state of the pool after this transaction will be the following:

Limit Order​

Additionally, users can set limit orders to borrowat specific interest rate ticks. As for market orders, a user must first deposit some collateral in the Tenor contract, then mint an offsetting pair of Fixed Rate Tokens and Fixed Rate Debt Tokens.

The execution of limit orders is conditional to a lender swapping in the tick where the limited order is placed. When a limit order is filled, Fixed Tokens are swapped for Loans Tokens using the same mechanism as for market orders.

Users can cancel in part or in full their limit orders.

Limit Order Fees​

Users setting limit orders to swap do not pay any fees.

Closing a Position​

Borrowers can close a position in part or in full at any time before maturity. To exit their position, they must swap Loan Tokens in exchange for Fixed Tokens to cover their Fixed Debt. Repaying a position using Fixed Tokens is conditional to sufficient liquidity in the IR-AMM. If there is no liquidity in the AMM, the borrower can always set a lend limit order at an attractive rate to purchase Fixed Tokens asynchronously.

Alternatively, borrowers can also always add Loan Tokens to their account at any time to repay their loan.

At Maturity​

When a borrower's loan matures, they must repay their debt in full. They can do this either by:

  • Extending their loan in a longer-dated maturity to extend their borrowing position.
  • Settle their account back to the variable rate market.

When a pool matures, a borrower has a two day grace period to repay their loan. Once the grace period ends, the protocol applies a penalty rate to the borrower's debt. Borrowers can place limit orders in longer-dated pools prior to the maturity date of their loan to extend their borrowing position.

Collateral Types​

Tenor suppoprts the following types of collateral for borrowing:

  • Collateral Assets (e.g., WETH, wstETH, WBTC)
  • Fixed Tokens
    • Allows lenders to use the Fixed Tokens they receive as collateral to borrow in a longer-dated maturity pool. Using Fixed Tokens as collateral enable borrowers to lend at a fixed rate in one maturity while simultaneously borrow in another maturity, creating a link between pools of different maturities.
  • Loan Tokens
    • The protocol allows users to mint Loan Tokens at anytime. If a user borrows with Loan Tokens as collateral, they will effectively earn the variable rate and borrow at the fixed rate. Using Loan Tokens as collateral enable borrowers to lend at the variable rate while borrowing fixed in a given maturity. This creates a link between the variable rate market and all Tenor fixed rate pools.
  • Limit Orders
    • The Fixed or Loan Tokens in the limit order can be used as collateral to borrow in a pool of a different maturity. This useful for borrowers approaching maturity that want to extend their borrowing position. They can place a limit order to borrow in a longer-dated pool and use their limit order as collateral to close their position in the shorter-dated pool.