Borrowers can deposit whitelisted collateral assets to the Fringe Lending facility into a user-specific and asset-specific Collateral Safe, which is then reflected as their borrowing capacity arising from the deposited assets. The borrowing capacity is derived by multiplying the value of the deposited assets by their loan-to-value ratio, or LVR. Different collateral assets can have different LVRs.
Collateral types accepted into Primary Collateral Safes are assigned a Loan-to-Value Ratio (LVR) through our approach to parameter asset modeling. Borrowers may take out loans of the capital from the Primary Capital Pool based on the borrowing capacity afforded them by their deposited collateral i.e. loans are collateralized.
Loan positions may be adjusted by the borrower by either borrowing more capital assets, repaying any part of the loan and depositing or withdrawing collateral, so long as the minimum collateralization level is maintained as dictated by their collateral LVR.
In return for their altcoins, users receive a non-transferable token, PIT, which standardizes their collateral assets. Each PIT is pegged to 1 USD. As such, PIT represents the borrower’s borrowing capacity in USD.
The amount of PIT tokens awarded to the borrower for the assets they deposit is based on the LVR for the asset deposited. The borrower’s borrowing capacity, or PIT value, can be calculated using the following formula:
The formula to calculate the PIT balance of a borrower.
The amount of a user’s PIT (i.e. borrowing capacity) will fluctuate with the market price of their collateral assets they have deposited. For a full breakdown of how a collateral asset’s LVR is determined, go to our section on Collateral Asset Parameter Modelling.
Undertaking loans of capital assets
Borrowers can take out loans from the Primary Capital Pools based on their borrowing capacity. i.e. amount of PIT tokens they have available.
If the borrower has remaining borrowing capacity, a loan amount can be extended by borrowing additional capital assets or excess collateral can be withdrawn by the borrower.
Interest charges on open loan positions
Interest is charged on each of the borrower’s open loan positions. This is calculated per block and is accrued to each loan position.
Fringe Lending presents both the loan principal amount and the accrued interest amount for each loan. Accrual of interest increases the amount the borrower needs to repay to settle the loan. Accrual of interest also reduces the amount of the borrower’s available PIT tokens. i.e. reduces their remaining borrowing capacity.
Any repayment of capital assets to settle a loan position is first applied to the accrued interest amount and then applied to the loan principal amount.
Repaying any part of a loan increases the borrower’s borrowing capacity. i.e. increases the amount of available PIT tokens.
Atomic Loan Repayments
Fringe’s v2 supports Atomic Repayments, which allows a borrower to repay a loan in part or in whole using collateral assets that are securing the loan. This allows borrowers to settle loans without needing to have the capital assets on-hand to repay the loan.
Atomic Repayments employ a third-party DEX aggregator to swap collateral assets for the capital (lending) asset to then repay the loan in a single transaction. v2 of Fringe Lending will automatically use the lending assets obtained through the swap to repay some or all of the outstanding loan. This streamlines the repayment process and creates new opportunities for leveraged long/short options in the updated version of the platform.
Atomic Repayments will be available so long as there is a liquid trading market to enable the swap between the collateral asset and the capital asset.