Auto-Renewal

Tenor offers opt-in auto-renewal smart contracts to simplify the renewal process and minimize the likelihood of users getting liquidated at maturity.

When enabled, the smart contracts enable any third party (e.g. lender) to renew a borrower’s position in a longer-dated term or at the variable rate, removing the need for manual repayment or monitoring.

If auto-rolling is disabled and the user fails to repay their position by maturity, collateral equivalent to the value of the debt is liquidated to repay the position.

Renewal Mechanisms

When opening a position, the user selects one of the following renewal policies:

• Fixed-Term, Fixed-Rate Renewal
• Open-Term, Variable-Rate Renewal
• Self-Managed (no auto-renewal)

Third parties (e.g. existing lenders) can execute renewals by taking over the borrower's debt and rolling it into a new position. Lenders can post limit orders before maturity to facilitate rollovers, and are incentivized to do so at a higher rate than the market, allowing them to acquire below-market-rate positions and realize a mark-to-market gain.

Fixed-Term, Fixed-Rate Renewal

With fixed-term, fixed-rate renewal, positions can be programatically renewed into a longer-dated fixed-rate market based on the user’s renewal policy.

Renewal Policies

Users can customize their fixed-term renewal policy by specifying:

• Their preferred interest-rate auction policy
  • Linear rate policy: A simple linear auction rate curve with one kink point.
  • Target rate policy: A multi-kink auction rate curve.
• Auction duration (e.g. 6 hours)
• Their maximum renewal interest rate (e.g. 7%)
• Their minimum renewal term length (e.g. renew for min. 30 days)
• Their maximum renewal term length (e.g. renew for max. 90 days)

The image below illustrates how fixed-term, fixed-rate renewal works in practice. In this example, a borrower holds a position at 5% APR. An auction is held six hours before maturity to facilitate the rollover. During this period, a user rolls the borrower's position into a longer-dated maturity at 6% APR.

The following table illustrates the step by step process of rolling over a position into a longer-dated maturity at a fixed rate.

Learn more about fixed-term, fixed-rate renewal here.

Open-Term, Variable-Rate Renewal

Tenor also allows users to renew their positions into a corresponding Morpho variable-rate open-term market.

The image below shows an example of an open-term, variable-rate renewal. In this example, a borrower holds a position at 5% APR. Before maturity, a third party rolls over the borrower's position into the Morpho variable-rate market at 7.5% APR.

The following table illustrates the step by step process of rolling over a position into a corresponding Morpho variable-rate open-term market.

Learn more about open-term, variable-rate renewal here.

Combined Renewal Policy

A user can combine the two renewal mechanisms to create a more flexible renewal policy.

For example, a user can enable both fixed-term, fixed-rate renewal and open-term, variable-rate renewal policies. By initially only allowing fixed-term, fixed-rate renewal, and enabling open-term, variable-rate renewal later, the user can ensure that their position is renewed into a fixed-term position if possible, and into a variable-rate position if not.

The image below illustrates how a user can combine the two renewal mechanisms. In this example, an auction is first held to enable fixed-term, fixed-rate renewal, but no third party is willing to renew the position at a rate below or equal to the user's maximum renewal rate. Later, once the variable rate renewal period begins, a third party decides to renew the position at a variable rate of 7.5%, preventing the position from being liquidated at maturity.