Overview

​

Initiate a loan

When lending, you are presented with the terms for a borrow request: collateral token, borrow token, loan-to-value, liquidation threshold, maturity, oracle parameters, and other loan settings, plus a rising interest rate curve. Once the rate has risen enough to be attractive given the terms, accepting the request initiates the loan and transfers funds to the borrower.

​

Default terms

If the borrower does not fully pay back what is owed before the term ends, all collateral is forfeited to the lender.

​

Other ways the loan can end

The loan also ends when the borrower refinances, fully repays, or is successfully liquidated.

​

Interest model

In openLend, interest is calculated as simple APR. Partial payments are immediately sent to the lender and credited against the borrower’s debt. A commitment interest parameter selected by the borrower can help manage prepayment risk. When refinancing or fully repaying, the borrower must pay at least the committed amount of interest. Borrowers seeking lower rates may choose higher commitment interest to make their loan more attractive to lenders.

​

Liquidations

Liquidation is a permissionless process where an openOracle report is submitted to determine whether the loan is underwater relative to the agreed liquidation threshold. The borrower’s position is frozen until liquidation concludes. For liquidation purposes, debt is calculated as principal plus the greater of accrued interest and commitment interest. When accepting a loan, the lender can decide whether to handle liquidations directly or allow third-party liquidators. If the lender handles liquidations directly, the lender can keep all liquidation equity. If the lender allows outside liquidators, the lender shares liquidation equity in exchange for outsourcing that service. As part of the borrower’s terms, liquidators must stake some of the collateral token in exchange for the right to freeze the position. If liquidation succeeds, the stake is returned. If liquidation fails, meaning the final oracle price does not imply insufficient collateral value, the stake is forfeited. When a loan is successfully liquidated, the borrower loses all collateral. Using the final oracle price, the amount owed is valued in collateral token terms and paid to the lender. Any remaining equity is split between lender and liquidator.

​

Oracle game and grace period

If a liquidation attempt fails too close to maturity or after maturity, openLend adds a grace period to the loan’s term, giving the borrower extra time to fully repay or refinance. During grace, further liquidations are not possible. A borrower may be able to trigger an unsuccessful liquidation near the end of the term to contrive a grace period. To compensate for this, the lender receives half of the liquidator stake when grace is triggered. The lender also receives a share of per-round oracle game fees. Since each oracle round can be exponentially larger than the last, prolonged oracle games can generate significant fee flow for the lender.