Lending & Borrowing Basics

A short primer on the mechanics behind Tydro

Supplying

When a lender supplies an asset to a market, it becomes available for borrowers, and the lender earns interest paid by borrowers. Supplied assets are not locked. A lender can withdraw as long as the market holds enough free liquidity.

Borrowing

To borrow, a borrower first posts collateral. The borrower can then borrow another asset up to a limit set by the collateral's loan-to-value ratio. Borrowing accrues interest, which the borrower repays with the principal.

In Tydro's launch market, a borrower posts kBTC as collateral and borrows USDC. See Isolated Markets.

Collateral and health

Each collateral asset carries two key parameters:

• Loan-to-value (LTV): the most a borrower can borrow against the asset, as a share of its value.
• Liquidation threshold (LT): the point at which a position becomes eligible for liquidation.

A borrower's position has a health factor that summarizes how close it is to liquidation. Above 1 is safe. At or below 1, the position can be liquidated.

Interest rates

Borrow and supply rates move with utilization, the share of supplied liquidity currently borrowed. Rates rise as utilization rises. The curve is set per market.

Tydro V2's first launch market use a flat borrow rate that does not change with utilization, so a borrower holds a fixed rate with no maturity. The supply side floats: a lender earns a yield that varies with utilization, the share of supplied liquidity currently borrowed.

Liquidation

If a position's health factor falls to 1 or below, a liquidator can repay part of the debt and receive an equivalent amount of collateral plus a bonus. This keeps the market solvent. See Liquidations.

Borrowing carries liquidation risk. If your collateral falls in value or your debt grows, you can lose collateral to liquidation. Monitor your health factor.