Lending
The OpenLeverage protocol contains lending pools for users to place leverage trades. To maintain risk isolation, each trading pair has an independent lending pool.
Users can provide any asset to the OpenLeverage protocol lending pools. The lending pools of different trading pairs are independent, even if using a similar asset. For example, the wETH tokens of the wETH-USDT trading pair and the UNI-wETH trading pair will be allocated into two different pools of funds.
By providing assets to the OpenLeverage protocol lending pools, users will get LTokens as lending pool equity, and part of the lending pool will also provide $OLE rewards. In addition, when the trading pair generates a transaction in which the users borrow assets from the lending pool, the lender will receive the corresponding interest. The distribution of loan interest, LTokens, and $OLE rewards depends on the proportion of assets provided by the lender against the total asset in the pool.
To prevent the protocol from flash loans attacks, the OpenLeverage protocol does not allow lending and repayment to be completed in the same block. Users must therefore open and close their positions in separate blocks.
Providing assets to the OpenLeverage protocol lending pools may face the risk of liquidation. In extreme cases, the equity on the traders' account would be negative, which may cause a loss to lenders. That’s why the OpenLeverage protocol has a risk protection pool, which can provide a certain percentage of subsidies to cover these extreme cases, as governed by the DAO.
Asset providers may face the risk of liquidation. In extreme cases, the equity in the traders' account may be negative, which may cause a loss to lenders. The OpenLeverage Protocol mitigates this risk through the risk protection pool, which can provide a certain percentage of subsidies to cover these extreme cases, as governed by the DAO.
Two Separate Pools Created For Each Pair
Anyone can create a lending market for a specific pair composed of two separate lending pools. For example, someone might be interested in doing leverage trading on the FEI/USDC pair, so they create two lending pools for the FEI/USDC pair from Uniswap:
FEI → USDC Pool, where lender supplies FEI to be borrowed to buy USDC only
USDC → FEI Pool, where lender supplies USDC to be borrowed to buy FEI only
Interest Rate Model
Each pool has a kinked interest model that defines interest rates based on supply and demand. Following Compound's design, interest rates should increase as a function of demand; when demand is low, interest rates should be low, and vise versa when demand is high.
Below are important parameters for each lending pool:
Initial Interest Rate: the rate to start with for initial demand
Max Interest Rate: the maximum rate at full utilization
Utilization Kink: the ratio when the kink happens, interest rate increases faster above the utilization kink.
Utilization Rate: reflecting usage of the lending pools
TVL based on the current lending divided by the total reserves, converted to USD
Automatically Updated Rate Model
The Rate Model is automatically updated so lenders can have increased returns for deposits and incentivize more users to lend while providing support for more trading volume. The Rate Model is automatically updated at 6 PM UTC every 2 days and is available on the BNB and KCC Chains. Updates are available on Discord at the #market-updates channel.
There are three case scenarios:
Case 1:
Utilization rate < the kink, and current max interest rate = max initial interest rate
No interest rate adjustment
If the utilization rate is less than the kink and the current maximum rate is equal to the max initial interest rate, there will be no rate adjustment.
Case 2:
Utilization rate < the kink, and current max interest rate > max initial interest rate Set current max interest rate to max initial interest rate
If the utilization rate is less than the kink, the current maximum interest rate is greater than the maximum initial interest rate, and the current maximum interest rate will be reverted to the maximum initial interest rate.
For example, if the current maximum interest rate (corresponding to the highest borrow rate on the interest rate model) is 140%, the maximum initial interest rate is 100%. The following 2 day maximum interest rate will be reverted from 140% to 100%.
Case 3
If the utilization rate >= the kink, and the TVL >$1,000 Set current max interest rate to (current max interest rate + 0.2 * max initial interest rate)
If the utilization rate is greater than or equal to the kink, the current maximum interest rate will be increased by 20% of the maximum initial interest rate.
For example, if the current maximum interest rate (corresponding to the highest borrow rate on the interest rate model) is 100%, the kink is 70%, and the utilization rate is 80%, the following day's maximum interest rate will be increased from 100% to 120%.
If the utilization rate >= the kink, and the TVL< $1,000 No interest rate adjustment
Reserve
10% generated interests will be set aside to the reserve for each lending pool to protect the lender if an unexpected loss happens.
LToken
LTokens are interest-bearing tokens and the primary means of interacting with the OpenLeverage lending pools.
Fund Supplier will receive an LToken after depositing their funds into a lending pool. Interest is not distributed; instead, simply by holding LTokens, you will earn interest. LTokens accumulate interest through their exchange rate over time. Each LToken becomes convertible into an increasing amount of its underlying asset even while the number of LTokens in your wallet stays the same.
Through their yield farms, other projects may give LToken to incentivize fund suppliers to allow borrowers to perform leveraged trade on their tokens.
FAQ
Why is the borrowable amount still zero even after I deposit money into the lending pool?
To guarantee users' ability to withdraw funds anytime, the platform restricts the maximum borrowable amount in the lending pool to 80% of total deposits. When the utilization rate is more than 80%, the amount available for borrowing becomes zero.
Suppose you deposit money into the pool when the utilization rate is 90%, and your deposit does not bring the rate down to under 80%. In that case, you will temporarily be unable to borrow money. But you can withdraw your money.
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