Last updated
Last updated
Individual fixed rate markets support a set of fixed rate trading pools of different maturities. Each Fixed rate market implements a collateral framework to ensure that borrowers overcollateralize their debts with assets of greater value. To achieve this, each market implements a getNetCollateral function that calculates the risk adjusted value of an account in Underlying Tokens (e.g., USDC). Accounts can utilize the following as collateral:
Collateral Assets
Fixed Rate Tokens
Loan Tokens
LP Tokens
Limit Orders
Collateral assets such as WETH, wstETH, WBTC are risk adjusted using the following formula:
To risk-adjust Fixed Rate Tokens, the protocol must first determine the user's net Fixed Rate Token balance. A user can hold Fixed Rate Tokens directly in their account and indirectly through liquidity providing (LP) positions and limit orders.
The protocol will aggregate the user's LP and limit order claims on Fixed Rate Tokens and add them to the user's balance. Subsequently, the net Fixed Rate Token balance is risk-adjusted using the following method:
This risk adjustment method effectively values Fixed Rate Tokens at the present value (PV) of the pool's maximum rate, augmented by an interest rate buffer. This ensures that Fixed Rate Tokens are always valued more conservatively compared to the maximum rate at which a user could acquire Fixed Rate Tokens. Additionally, the protocol ensures that Fixed Rate Tokens are always discounted at a minimum rate of 1.01 (resulting in a PV of 0.99). This constraint serves to limit the amount of leverage a user can assume on their Fixed Rate Tokens as they approach maturity.
Fixed rate debts are valued at a present value (PV) of 1, which assumes that debts are always worth their full face value. This conservative approach is used to effectively risk-adjust debts.
A user can hold Loan Tokens directly in their account and indirectly through liquidity provider (LP) positions and limit orders. For LP token and limit order claims on Loan Tokens, the following risk adjustment is performed:
This adjustment for Loan Tokens is executed as follows. Since a user can hold a claim on Loan Tokens (e.g., USDC) within a specific tick (e.g., 10% tick), it is understood that a borrower could convert the user’s position from Loan Tokens to Fixed Rate Tokens (e.g., convert the tick's balances from USDC to fUSDC). In such a scenario, the protocol would discount the fUSDC at the maximum rate plus a buffer (as detailed in the fixed rate token section above). To preempt a discrete change in the valuation of the user’s LP position, it is necessary to discount the position as if it were entirely held in Fixed Rate Tokens. Thus, the protocol calculates the present value (PV) of the position under the assumption that it converts to Fixed Rate Tokens, and subsequently discount this position at the maximum rate plus buffer. Finally, the risk-adjusted Loan Token claims are added to the user’s Loan Token balance.
This collateral framework enables sophisticated market participants to execute yield trading strategies across pools with leverage. For instance, a participant could deposit 1,000 USDC into their account, mint 50,000 fUSDC, and utilize those Fixed Rate Tokens to engage in market-making activities across different maturities. As Fixed Rate Tokens approach maturity, the amount of leverage one can take on Fixed Rate Tokens increases. If a market is listed with a lower maxRate parameter it will effectively allow users to use more leverage that if the maxRate was set at a higher rate.