Spine Lending Liquidity Pool
Last updated
Last updated
Unlike variable-rate lending pools, Spine's fixed-rate lending pool acts more similarly to an Automated Market Maker (AMM) mechanism.
Let's use the case of a lending pool for USDC.
When you lend or borrow at a fixed rate, you are either trading for USDC (borrow), or USDC for (lend) via Spine's Liquidity Pool. Liquidity providers in the pool would act as a counterparty to all lending and borrowing by end users.
Spine Liquidity Pool uses a multi-maturity mechanism, which means this USDC lending pool of ours would consist of USDC and several types of sBONDs with different maturities. Most often, the pool will initially have 6 sBOND types of the following maturities: 1 week, 1 month, 3 months, 6 months, 1 year, and 2 years.
There are three ways that user can interact with Spine’s Lending Liquidity Pools: Lending, Borrowing, and Providing Liquidity. Lenders deposit USDC into the pool and receive sBOND, which can be redeemed for USDC + a fixed amount of interest at maturity. Borrowers lock up blue-chip assets like Ethereum and Bitcoin to mint sBOND. They choose a maturity date and exchange sBOND for USDC, which will be repaid at maturity with a fixed interest. The liquidity provider adds USDC or ETH into the pool, facilitating lending and borrowing activities for traders.
The interest rate is determined by the amount and ratio of USDC and sBOND in the Lending Liquidity Pool. As users lend more, more USDC would be swapped for sBOND, pushing interest rates lower for the next user. On the other hand, as users, more sBOND would be swapped for USDC, pushing interest rates higher for the next user.
As there are several sBOND maturities, but only one common pool, the same amount lent or borrowed would incur larger slippage the longer the maturity. For example, a 100,000 USDC lending position with a maturity of 2 years would push interest rate lower more than the same amount would with a maturity of 1 month.
Users claiming their rewards or repaying debt after their positions have matured will not affect the market interest rate.
