How it Works
Here's the quickest overview on LotusSwap AI's pool parameters and its relationships (~5 mins):
Asset pair: The asset pair of the pool (e.g., ETH/USDC).
Transition price (TP): The price level at which borrowers are expected to change their actions (whether to repay their loans).
APR: The annualised interest rate at which borrowing and lending occurs (subject to change after every lending/borrowing transaction).
Maturity: The date and time at which the pool expires.
CDP: A figure to assists borrowers and lenders gauge their loan's collateral factor and unit coverage respectively.
A LotusSwap AI pool is uniquely defined by its 1) asset pair, 2) transition price and 3) maturity. There can be multiple pools for the same asset pair (e.g., two ARB/USDC pools, one with 1 week maturity and another with 2 months maturity). Closing the borrow position at maturity
There are two possible scenarios at maturity with respect to the price action of the pair: 1) spot price of ETH > transition price and 2) spot price of ETH < transition price.
1) Closing the borrow position (at maturity) when spot price of ETH > transition price
Let's consider the case where the price of ETH remains at 1,000 ETH/USDC.
At maturity, the borrower's borrowed principal (i.e., cash on-hand) is 800 USDC.
The borrower's locked collateral is worth 1,020 USDC (locked collateral * spot price = 1.02 * 1,000).
Since the borrower's locked collateral is worth more than their borrowed principal, it makes more economic sense for them to repay the debt (and thus unlock the collateral).
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