Lending
Last updated
Last updated
The Levex 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 Levex 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 Levex protocol lending pools, users will get LTokens as lending pool equity, and part of the lending pool will also provide $LVX 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 $LVX 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 Levex 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 Levex 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 Levex 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 Levex 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.
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 LVX/USDC pair, so they create two lending pools for the LVX/USDC pair from Uniswap:
LVX→ USDC Pool, where lender supplies LVX to be borrowed to buy USDC only
USDC → LVX Pool, where lender supplies USDC to be borrowed to buy LVX only
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
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.
There are three case scenarios:
Utilization rate < 70% and current rate = max initial interest rate
No daily interest rate adjustment
Utilization rate < 70% and current rate > max initial interest rate
If TVL > 1000 USD Set current rate to (current rate - 0.2 * max initial interest rate)
For example, if the current maximum borrow rate (corresponding to the highest borrow rate on the interest rate model) is 138.6%, the maximum initial borrow rate is 99%, and the TVL is 10,000 USD. The following day maximum borrow rate will be reduced from 138.6% to 118.8%.
If TVL <= 1000 USD Set current rate to max initial interest rate
For example, if the current maximum borrow rate (corresponding to the highest borrow rate on the interest rate model) is 138.6%, the maximum initial borrow rate is 99%, and the TVL is 100 USD, the following day's maximum borrow rate will be reduced from 138.6% to 99%.
Utilization rate >= 70% Set current rate to (current rate + 0.2 * max initial interest rate)
For example, if the current maximum borrow rate (corresponding to the highest borrow rate on the interest rate model) is 99%, the kink is 70%, and the utilization rate is 80%, the following day's maximum borrow rate will be increased from 99% to 118.8%.
10% generated interests will be set aside to the reserve for each lending pool to protect the lender if an unexpected loss happens.
LTokens are interest-bearing tokens and the primary means of interacting with the Levex 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.