Depositing collateral

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 and lending asset LVR.

The borrowing capacity of the collateral deposited by a borrower is a product of the value of the collateral, the collateral asset's LVR and the lending token's LVR.

The 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.

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borrowing capacity, a loan amount can be extended by borrowing additional capital assets or excess collateral can be withdrawn by the borrower.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 their remaining borrowing capacity.

Repaying loans

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.

Repay Using Collateral - Atomic Loan Repayments

Fringe’s v2 supports Atomic Repayments, which allows a borrower to repay a loan or trading position in part or in whole using collateral assets that are securing the position. This allows borrowers to settle positions without needing to have the capital assets on-hand to repay the loan.

Repaying using collateral (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.

"Safety buffer" when repaying using collateral -

In the process of Repaying Using Collateral, we take precautions to prevent issues like price slippage that could cause transactions to fail. To achieve this, we include a small buffer when swapping from the collateral token to the lending token.

Here's how it works in practice:

  • Let's say you have 10 USDT as collateral and have borrowed 4 USDC.

  • When you use RUC, the system calculates that it will take 4 USDT to swap into 4 USDC to repay your loan.

  • However, in practice, we'll actually use 4.02 USDT (including a 5% buffer) to swap for USDC.

  • Suppose that after being swapped, the system receives 4.01 USDC, then 4 USDC will be used to repay the loan, 0.01 USDC remaining will be sent to your wallet.

The net effect of this safety mechanism is your external wallet may receive any small remaining amount of the buffer.

Fringe Finance has prepared a brief Youtube video that presents the basics of borrowing on the Fringe V2 platform.

Some notes regarding the Borrow UI

The Borrow pop-up modal includes a number of values to help you understand the limits to the amounts that are available for you to borrow.

  • Remaining Borrow Cap: Refers to the capital asset's remaining borrowing cap. Each capital asset has a maximum borrow amount. You may not borrow more than this amount.

  • Your Available Borrow: Refers to the remaining borrowing capacity of your collateral against which this borrow will occur. You may not borrow more than this amount.

  • Total Available Borrow: Refers to the capital pool's available cash. You may not borrow more than this amount.

The lesser of the three figures above is the maximum you are permitted to borrow in the current borrow scenario.

To note: The Safety Buffer slider will automatically adjust as you type the borrow amount to reflect the state of your borrow position after you open the position.

Last updated