Lending Guide（testnet）
A detailed guide for lending
1. Features
Awaken Lending is a DeFi lending protocol based on the over-collateralized lending model. Initially, there will be some token markets on Awaken Lending, including USDC, DAI, USDT, WBTC, and ETH. The market will expand and diversify with the demand of users. The assets in the Awaken lending market derive from three parts——liquidity from LPs on AwakenSwap, deposits from suppliers, and collaterals from borrowers. For LPs, x%(x belongs to [0, 100]) of the total assets in liquidity pools they supply on AwakenSwap will automatically be invested in the lending market as the lending funds. For suppliers within the lending market, the assets they deposit in any token pool will directly serve as the lending funds. For borrowers, they need to pledge a token in the corresponding token pool as collateral in order to borrow another token, and the collateral they provide will also be a part of the lending funds. To sum up, LP and borrowers are also suppliers.
2. awToken
Suppliers will earn the supply interest when withdrawing their assets and, correspondingly, borrowers need to pay the borrowing interest when repaying their debt. After depositing the underlying assets, suppliers can get a certain amount of awToken, which can be used to exchange for the underlying assets. The exchange rate of awToken to the underlying asset begins at 0.02 (e.g. 1awETH=0.02ETH) and will increase over time after the deposit. The increased part in the exchange rate is the interest earned by the suppliers. The more borrowings on the platform, the faster the exchange rate increases.
3. Over-collateral Mechanism
Awaken Lending takes the security of suppliers’ assets as our priority. As an over-collateralized lending protocol, Awaken Lending requires borrowers to collateralize an extra portion of token assets when borrowing another token asset. The dollar value of the asset that a borrower can receive is worth no more than 80% of his/her collateral, and this parameter is called collateral rate. To be more specific, the collateral rate of a token indicates when a borrower deposits this token as collateral, the percentage of the value of the collateral he/she can receive in the borrowed token. For example, Tom collateralizes $ETH to borrow $USDT, where 1ETH=2000USDT=$2000 and the collateral rate of ETH is 70%, then he can receive 2000*70%=1400USDT when pledging 1ETH as collateral. Collateral rates differ from tokens, below shows the collateral of all tokens in the Awaken Lending market when they serve as collateral.
USDT
50%
USDC
80%
DAI
80%
WBTC
70%
ETH
70%
4. Utilization Rate
The supply and borrowing interest rates on Awaken Lending are determined by the utilization of lending funds. The utilization rate, which indicates the efficiency of assets utilization on Awaken lending protocol, is calculated as the total amount of assets borrowed divided by the total amount of assets supplied in the Awaken lending market. Both supply and borrowing interest rates increase with the utilization rate. To prevent “bank runs” from happening, the supply and borrow interest rates of all tokens available on Awaken Lending will jump suddenly once the utilization rate of the corresponding token(s) surpasses 80% (with the exception of $ETH due to its large scale of supply). Below shows the supply and borrowing interest rates of the six tokens in Awaken lending market under different utilization rates.
USDT
0.00%
4.60%
y=0.0575x
64.60%
y=0.046+3(x-0.8)
USDC
0.00%
4.60%
y=0.0575x
64.60%
y=0.046+3(x-0.8)
DAI
0.00%
4.60%
y=0.0575x
64.60%
y=0.046+3(x-0.8)
WBTC
2.30%
25.00%
y=0.28375x+0.023
85%
y=0.25+3(x-0.8)
ETH
2.30%
11.50%
y=0.115x+0.023
13.80%
y=0.115x+0.023
USDT
0
3.50%
y=0.04375x
42.10%
y=0.035+1.93(x-0.8)
USDC
0
3.50%
y=0.04375x
42.10%
y=0.035+1.93(x-0.8)
DAI
0
3.50%
y=0.04375x
42.10%
y=0.035+1.93(x-0.8)
WBTC
0
19%
y=0.2375x
55.25%
y=0.19+1.81(x-0.8)
ETH
0
8.50%
y=1.328*10^(-5)x^2
13.28%
y=1.328*10^(-5)x^2
5. Liquidation System
To further secure the assets of suppliers, Awaken Lending implements a rigorous liquidation process, liquidating the collateral of the borrower immediately when the system identifies that he/she may not be able to repay his/her debt. The liquidation process is triggered when the ratio of the value of the borrower’s collateral to the value of his/her debt surpasses a certain level, which is called the liquidation threshold. For example, suppose Tom deposits $ETH as collateral and borrow $DAI where the liquidation threshold of $ETH is 70%, that means when the value of $ETH (his collateral) divided by the value of $DAI (his debt) equals 70%, Tom will be put on the liquidation list; his collateral will be sold to the liquidator at a discount rate to repay his debt and eventually he can only withdraw the portion of his collateral left after liquidation. Liquidation thresholds vary across tokens. Below shows the liquidation threshold of each token when it serves as collateral.
USDT
55%
USDC
85%
DAI
85%
WBTC
75%
ETH
75%
To facilitate the liquidation process and increase the efficiency of liquidation, Awaken rewards liquidators with an extra portion of borrowers’ collateral when they initiate a liquidation and repay the debt for the borrower. The additional collateral given to liquidators is named the liquidation incentive. On Awaken Lending, the liquidation incentives of all tokens are set at 1.1, which means liquidators receive an extra 10% of the borrowers’ collateral for every unit they liquidate.
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