We’re about to dive deep into the game-changing world of THORFi Lending.
It’s a system within THORChain that allows users to deposit native collateral (like Bitcoin) and generate debt.
The unique part?
This debt, irrespective of the asset, is always expressed in USD terms, known as TOR.
And here’s the kicker:
all loans have 0% interest, no liquidations, and no expiration.
Reference: Lending – THORChain Docs
Why THORFi Lending Stands Out
– No Liquidation Risk:
Users can create loans using native assets without fearing the sudden liquidation of their assets.
Be short on USD while being long on assets like Bitcoin.
– Economic Benefits:
The protocol enhances capital efficiency, trading volume, and total bonded, making it a magnet for capital.
Reference: Lending 101 – Medium
The Lending Process Demystified
Users provide assets, say Bitcoin, which is securely held in the Lending module.
– Conversion to TOR:
The value of this collateral is translated to TOR terms.
– Debt Calculation:
Debt, in TOR, is determined based on the Collateralization Ratio (CR) and the collateral’s value.
– Receiving the Loan:
The TOR debt is swapped for the user’s desired L1 asset and dispatched to them.
Repayment Made Simple
Repaying a loan in THORFi Lending is as straightforward as taking one. Users can repay at any time, in any amount, and with any asset. The system then converts the repayment into TOR.
The collateral remains secure and returned at loan Repay.
Risk Management -> Safety First
THORFi Lending is not just about flexibility; it’s about security:
– Collateral Limits:
Each pool has a set limit for collateral to ensure stability.
– Dynamic CR:
The CR Ratio adjusts as loans are opened and repaid, maintaining equilibrium.
A safety mechanism on RUNE supply ensures the system’s robustness.
Reference: THORChain Risk Report – HackMD
The Power of Derived Assets in Lending
A significant aspect of THORFi’s design revolves around derived assets. These are algorithmic coins, like thor.btc and thor.tor, backed by the liquidity of RUNE.
In the lending context, TOR (thor.tor) acts as a non-transferable unit within THORChain, equating to $1 USD.
All transactions within the lending system, be it collateral, debt, or repayments, are converted to and accounted for in TOR.
Deep Dive into Lending Risks
Every financial system has risks, and THORFi Lending is no exception. However, it’s the management of these risks that sets it apart:
– Opening new loans can deflate the $RUNE asset, while closing loans can
– To counteract these effects, lending controls, such as slip-based fees and dynamic CR, are in place.
– External reviews, like those by Block Science, provide insights into the system’s robustness and risk management.
THORFi Lending by THORChain is not just another lending protocol; it’s a paradigm shift.
With its unique features, meticulous risk management, and user-centric design, it’s poised to redefine the DeFi lending landscape.