Lending & Borrowing (soon)
Lending is the process of depositing (i.e. supplying) tokens to a pool. In exchange for providing liquidity to this pool, users receive interest on the tokens they have deposited. The interest that lenders receive comes from other users who are paying interest to borrow tokens.
Lenders are able to withdraw their tokens at any time (as long as they aren't being used as collateral to borrow tokens and not all the tokens are being borrowed). There is no time lock or withdrawal penalty.
After depositing your tokens, the pool will mint fTokens - or "receipt tokens" - and credit you. These fTokens show that you have supplied assets to one of FBC's lending networks.
When you go to withdraw your tokens from the supply side, the system will ask for those fTokens back - so make sure you hold on to them!
The conversion rate from fTokens to the deposited token absorbs the interest that borrowers pay. This means that when you withdraw your tokens, you will receive more than you started with, proportional to the token's APY.
It is important to note that APYs in FBC's MMs are floating and not fixed. Rates get updated on a per-block basis and can fluctuate significantly within relatively short time spans. Rates that lenders receive are determined by the rates that borrowers pay.
Example: Say you deposit 100 FBC with an average APY of 5%. First, you will notice that your wallet now has 100 FBC worth of fFBC in it - these are your receipt tokens. When you go to withdraw your FBC after 1 year, you will trade back the fFBC and receive 105 FBC in return (your original 100 FBC plus the 5% APY).
Borrowing is the act of taking a loan from any of the lending networks. Contrary to lending which has users supplying tokens to a pool of assets, borrowing is the act of taking tokens out of the pool of assets.
Just like in traditional finance, borrowers are required to pay interest on their loans. This interest goes directly to the lenders/suppliers of that token.
The interest that borrowers pay is determined by the APY listed for the token(s) they are borrowing. It is important to note that APYs in FBC's MMs are floating and not fixed. Rates get updated on a per-block basis and can fluctuate significantly within relatively short time spans.
The interest that accrues each block is added to a user's borrow position, meaning their borrow position slowly grows over time in proportion to the APY. To pay back this accrued interest, a user simply pays back a portion of their loan.
The max amount that a user can borrow depends on the amount of collateral deposited and the token's Collateral Factor.
- The Collateral Factor - expressed as a percentage - is a multiplier used against your supplied assets. Let's say you supply $1000 WBTC as collateral, and WBTC has a collateral factor of 70%. This means that you can borrow up to $700 of any token ($1000 x 70%). Each token in a lending network will have its own collateral factor as determined by the creator of the lending network.
After borrowing tokens from a lending network, it's important to continuously monitor your position to ensure you have enough collateral to support your loan. As prices of tokens fluctuate, your position can be in danger of liquidation if not properly managed.