Spine Lending Liquidity Pool
How does Spine Lending Liquidity Pool Work?
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 sUSDC for USDC (borrow), or USDC for sUSDC (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 sUSDCs with different maturities. Most often, the pool will initially have 6 sUSDC 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 sUSDC, 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 sUSDC. They choose a maturity date and exchange sUSDC 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.
How does Spine Lending Liquidity Pool determine interest rates?
The interest rate is determined by the amount and ratio of USDC and sUSDC in the Lending Liquidity Pool. As users lend more, more USDC would be swapped for sUSDC, pushing interest rates lower for the next user. On the other hand, as users, more sUSDC would be swapped for USDC, pushing interest rates higher for the next user.
Longer Maturity = Higher Slippage
As there are several sUSDC 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.
Lending Redemptions and Borrowing Repayments
Users claiming their rewards or repaying debt after their positions have matured will not affect the market interest rate.
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