Loan Token

In Tenor, when users deposit loan assets (e.g., USDC), the assets they provide are deposited in the underlying Morpho money market allowing them to generate yield when their capital is idle (e.g., lend limit orders, passive LP positions). The protocol mints a token that represents the yield bearing version of the loan asset, called a Loan Token. To lend, users swap these Loan Tokens for Fixed Tokens in a Tenor Pool. On the other hand, users who borrow exchange their Fixed Tokens for Loan Tokens, allowing them to redeem the loan asset.

Tenor Pools of different maturities all use the same Morpho yield bearing token as their Loan Token. Therefore, the TVL of the Loan Token flows down entirely to the underlying money market.

Loan Tokens can be used as collateral, enabling users to lend at the Morpho variable rate and borrowing at a fixed rate. This type of positions is conceptually identical to Pendle yield trading.

Note that because Loan Tokens deposit in the underlying Morpho money market, if liquidity in the underlying market is lacking or bad debt occurs, Loan Token holders will also be affected.