RWA Token Minting (0% Interest Loans)

How are Lendr real world asset tokens created/obtained?

All Lendr.fi real world asset (RWA) tokens are created through our 0% interest borrowing mechanism. Users provide on-chain collateral (ETH, LSTs, etc.) to open "Troves", which are 0% interest loan positions, minting Lendr RWA tokens.

Troves require users to provide at least 110% collateral, ensuring that all Lendr RWA tokens are over-collateralized.

To ensure protocol solvency, there are no pre-minted or unbacked RWA tokens for our team, investors, or anyone else.

What is a Trove?

A Trove represents your loan position, saving information about your collateral and debt. If you are familiar with Vaults or CDPs from other platforms, Troves are similar in concept.

Troves maintain two balances: one is an asset acting as collateral and the other is a debt denominated in the RWA token. You can change the amount of each by adding collateral or repaying debt. As you make these balance changes, your Trove’s collateral ratio changes accordingly.

The minimum collateralization ratio is 110%. You can close your Trove at any time by fully paying off your debt.

Why would I choose Lendr.fi for borrowing?

Lendr offers interest-free (0%) loans that can be opened indefinitely.

Instead of having to sell your native blockchain tokens to have access to liquid funds, you can deposit your collateral in the Lendr protocol and withdraw real world asset tokens of your choice. This allows you to maintain exposure to native blockchain tokens while having usable assets within Web3.

You can repay your loan at any time to regain your collateral.

What type of collateral does the Lendr Network accept?

The Lendr protocol can support almost any ERC-20 token as collateral and intends to support a variety of collateral types including:

• Wrapped Native Tokens (wETH, wAVAX, wBNB, etc.)

• Liquid Staked Tokens (stETH, etc.)

• Stablecoins (DAI, LUSD, etc.)

• Yield-Bearing/Asset-Backed Tokens

How can the protocol offer interest-free borrowing?

The Lendr protocol charges one-time borrowing and redemption fees that support the system and are automatically adjusted by smart-contracts based on demand. Because the system is operated by smart contracts, an ongoing interest rate isn't required.

Other systems (e.g. MakerDAO) require variable interest rates that need to be managed via governance to make borrowing more or less favorable. Lendr instead opts for a decentralized direct feedback mechanism via one-off fees.

Do I have to pay fees as a borrower?

Every time you draw RWA tokens from your Trove, a one-off borrowing fee is charged on the drawn amount. Borrowing & redemption fees automatically adjusts based on demand, and have a minimum value of 0.875% and a maximum of 5%. The fee is 0% during Recovery Mode.

On Ethereum, a 200 RWA token Liquidation Reserve charge (lower on other networks) will be applied as well as returned to you upon repayment of debt. This fee is used to cover gas costs in case of a liquidation.

How is the borrowing fee calculated?

The fee rate is confined to a range between 0.875% and 5% and is multiplied by the amount of liquidity drawn by the borrower. The fee dynamically increases if demand is high, and lowers automatically if it is low.

Example: The borrowing fee stands at 0.5% and the borrower wants to receive 4,000 USRE to their wallet. Being charged a borrowing fee of 20 USRE, the borrower will incur a debt of 3,780 USRE after the Liquidation Reserve (200 USRE in this case) and issuance (borrowing) fee are subtracted.

When do I need to pay my loan back?

Loans issued by the protocol do not have a repayment schedule. You can leave your Trove open and repay your debt any time, as long as you maintain a collateral ratio of at least 110%.

What is the collateral ratio?

This is the ratio between the Dollar value of the collateral in your Trove and its debt in RWA token. The collateral ratio of your Trove will fluctuate over time as the price of the collateral token and the RWA token changes. You can influence the ratio by adjusting your Trove’s collateral and/or debt — i.e. adding more collateral or paying off some of your debt.

For example using USDL: Let’s say the current price of ETH is $2,000 and you decide to deposit 2 ETH ($4,000 USD worth). If you borrow 1,000 USDL (at $1 per USDL), then the collateral ratio for your Trove would be 400%.

(2ETH * $2,000) / (1,000 USDL * $1) * 100% = 400%

If you instead took out 2,500 USDL that would put your ratio at 160%.

What are the minimum collateral ratio (MCR) and the "recommended" collateral ratio?

The minimum collateral ratio (or MCR for short) is the lowest ratio of debt to collateral that will not trigger a liquidation under normal operations (aka Normal Mode). This is a protocol parameter that is set to 110%. So if your Trove has a debt of $10,000 in RWA token, you would need at least $11,000 worth of collateral to avoid being liquidated.

To avoid liquidation during Recovery Mode, it is recommended to keep the ratio comfortably above 150% (e.g. 200% or better 250%).

What happens if my Trove is liquidated?

You lose your collateral as your debt is paid off through liquidation, i.e. you will no longer be able to retrieve your collateral by repaying your debt. A liquidation thus results in a net loss of 9.09% (= 100% * 10 / 110) of your collateral’s Dollar value. You can however, keep the tokens that you originally minted.

What is the Liquidation Reserve?

When you open a Trove and draw a loan, 200 RWA token (10 RWA token on BSC) is set aside as a way to compensate gas costs for the transaction sender in the event your Trove is liquidated. The Liquidation Reserve is fully refundable if your Trove is not liquidated, and is given back to you when you close your Trove by repaying your debt.

The Liquidation Reserve counts as debt and is taken into account for the calculation of a Trove's collateral ratio, slightly increasing the actual collateral requirements.

What happens if my Trove is redeemed against?

When RWA token are redeemed, the collateral provided to the redeemer is allocated from the Trove(s) with the lowest collateral ratio (even if it is above 110%). If at the time of redemption, you have the Trove with the lowest ratio, you will give up some of your collateral, but your debt will be reduced accordingly as well.

The USD value by which your collateral is reduced corresponds to the nominal RWA token amount by which your Trove’s debt is decreased. You can think of redemptions as if somebody else is repaying your debt and retrieving an equivalent amount of your collateral. As a positive side effect, redemptions improve the collateral ratio of the affected Troves, making them less risky.

Redemptions that do not reduce your debt to 0 are called partial redemptions, while redemptions that fully pay off a Trove’s debt are called full redemptions. In such a case, your Trove is closed, and you can claim your collateral surplus and the Liquidation Reserve at any time.

Here's an example using USDL on ETH:

Let’s say you own a Trove with 2 ETH collateralized and a debt of 3,200 USDL. The current price of ETH is $2,000. This puts your collateral ratio (CR) at 125% (= 100% (2 * 2,000) / 3,200). Let’s imagine this is the lowest CR in the Liquity system and look at two examples of a partial redemption and a full redemption:

Example of a partial redemption

Somebody redeems 1,200 USDL for 0.6 ETH and thus repays 1,200 USDL of your debt, reducing it from 3,200 USDL to 2,000 USDL. In return, 0.6 ETH, worth $1,200, is transferred from your Trove to the redeemer. Your collateral goes down from 2 to 1.4 ETH, while your collateral ratio goes up from 125% to 140% (= 100% (1.4 2,000) / 2,000).

Example of a full redemption

Somebody redeems 6,000 USDL for 3 ETH. Given that the redeemed amount is larger than your debt minus 200 USDL set aside as a Liquidation Reserve (10 USDL on BSC), your debt of 3,200 USDL is entirely cleared and your collateral gets reduced by $3,000 of ETH, leaving you with a collateral of 0.5 ETH (= 2 - (3,000 / 2,000)).

How can you offer a collateral ratio as low as 110%?

By making liquidation instantaneous and more efficient, the RWA tokens need less collateral to provide the same security level as similar protocols that rely on lengthy auction mechanisms to sell off collateral in liquidations.

Why did the collateral and debt of my Trove increase without my intervention?

If Troves are liquidated and the Stability Pool is empty (or gets emptied due to the liquidation), every borrower will receive a portion of the liquidated collateral and debt as part of a redistribution process.