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Lend

Lending at fixed rates on Tenor can be done by either placing a market order (swapping instantly) or by setting 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.

When placing a market order, the tokens that are lent (e.g., USDC) are deposited in the underlying Morpho money market and users receive Tenor Loan Tokens in exchange. The Loan Tokens are swapped for Fixed Tokens in the Tenor Fixed Rate Pool of the maturity initially specified by the user. By swapping through the pool's interest rate AMM the user swaps through one or multiple interest rate ticks against limit orders and liquidity using the exchange rate formula:

exchangeRate=e(tickInterestRate⋅timeToMaturity)\text{exchangeRate} = e^{(\text{tickInterestRate} \cdot \text{timeToMaturity})}

Finally, the protocol sends the Fixed Rate tokens to the user’s wallet. At maturity, the user will be able to redeem the Fixed Tokens 1:1 for the loan's currency (e.g., USDC).

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 subtracted from the interest rate at which they lend. For example, if the pool's market rate is 5% and an the pool's interest tick is 0.25%, lenders using a market order will lend at 4.75%.

Example​

Consider a user who wants to lend 100 USDC using a market order in a 1 year USDC fixed rate pool with the following outstanding liquidity distribution:

The user's 100 USDC are swapped to the highest tick with Fixed Tokens (8% in the example) minus 1% (the swap fee). As a result, the user’s 100 USDC are swapped for 107 Fixed Tokens, and the protocol then sends these tokens to the user’s wallet. The illustration below displays the state of the Fixed Rate Pool after the user swapped their Loan Tokens for Fixed Tokens.

At maturity, if the user did not enable the auto-roll feature, their 107 Fixed Tokens are converted to 107 USDC which are sent to their wallet. If they enabled the auto-roll feature their 107 USDC are lent in a new pool.

Limit Order​

Additionally, users can set limit orders at specific interest rate ticks. As when placing a market order, the tokens that are lent are deposited in the underlying Morpho money market and users receive Loan Tokens in exchange. While the limit order is pending, users receive the variable interest generated by the underlying Morpho money market.

The execution of limit orders is conditional to a borrower swapping in the tick where the limited order is placed. When a limit order is filled, Loan Tokens are swapped for Fixed 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. Limit order users can receive fees paid by swappers effectively improving their net lending rate.

Closing a Position​

Lenders can exit in part or in full a position at any time before maturity. To exit their position, they must sell the Fixed Tokens they own in exchange for Loan Tokens. Exiting a position early requires the pool to be liquid. If the pool is illiquid, a fixed rate lender can set a borrow limit order at a rate he expects another lender to take his position.

At Maturity​

When Fixed Tokens reach maturity, users have three options:

  • Automatically roll forward their position by setting a flag in their account to lend in a new fixed rate pool of a longer dated maturity.
  • Redeem their Fixed Tokens to the underlying currency.
  • Do nothing. Their position will by default start earning the variable rate Morpho money market rate.

Using Fixed Tokens as Collateral​

The Fixed Tokens received from lending can be used as collateral when borrowing on Tenor. If Fixed Tokens are used as collateral, they must be used to borrow in a pool of a longer maturity. This allows borrowers to lend at fixed rates in one maturity while borrowing at fixed rate in a longer dated maturity.