In our protocol, interest rates are determined by the market through the funding book, a lending order book where bids to borrow are on the left and offers to lend are on the right. The price of the order book represents the rate of the underlying loan. This approach provides a more flexible and accurate reflection of market-driven pricing, and it facilitates better compliance tooling.
The use of an order book rather than interest rate curves offers several benefits, such as:
- Isolating positions: Individual chunks of positions can be easily isolated, allowing for greater control and transparency.
- Institutional suitability: The order book system is highly compatible with institutional requirements, as it supports roll-up views of counterparty exposure and easily integrates with KYC/AML tools.
Understanding that not everyone wants to actively manage an order book, we offer a yield product for users who prefer a more hands-off approach. By depositing funds, Lends will automatically manage orders for you, keeping your funds rolling in the order books. Users can also deposit pool tokens, like aTokens and cTokens from Aave or Compound, to earn the pool yield. When a peer-to-peer match is available, Lends will bump users up to a higher rate, allowing those in the lending pool to earn more.