Lending

The Abax Lending Protocol is a robust, permissionless system built on blockchain technology that allows users to participate in secure and efficient lending and borrowing activities. It facilitates a peer-to-contract model, streamlining the process and removing the need for traditional financial intermediaries.

Depositing & Earning

Lenders are the foundation of this Abax ecosystem. By depositing their supported cryptocurrencies into the protocol, they create liquidity pools that fuel borrowing activity. Depositors share a pool of interest generated by borrower payments. The interest earned by each depositor is proportional to their deposit amount relative to the total liquidity pool for a specific asset. In essence, the more depositor contributes to a particular liquidity pool, the greater their share of the interest generated from borrowing activity for that asset.

Earnings Mechanism

Upon deposit, interest accrues continuously, in real-time (accounted for every ~1 second). The interest rate is a dynamic value determined by current market conditions within the protocol. Higher demand for borrowing a specific asset increases the corresponding interest rate for that asset. Conversely, lower demand translates to a lower interest rate.

Deposit Considerations

• There is a maximum deposit limit set for each supported asset by Abax Governance to maintain protocol stability. This ensures a healthy balance within the liquidity pools.

• Users retain control over their deposited funds. Withdrawals can be initiated at any time, subject to liquidity availability within the corresponding pool. This means users can withdraw funds as long as there are still assets remaining to facilitate borrowing activity.

• Deposits are not automatically used as collateral for borrowing. Users have the flexibility to choose which deposited assets they want to designate as collateral for potential borrowing activities. This allows for more strategic management of crypto holdings.

Borrowing

The liquidity provided by lenders creates a pool of assets that users can leverage for borrowing opportunities. To borrow assets, users must provide sufficient collateral, which is another supported cryptocurrency deposited into the protocol. The amount of debt a user can incur depends on the value of the collateral provided and asset-specific parameters- Collateral and Debt Coefficients.

Borrowing Dynamics

The interest rate on borrowed assets is a dynamic value. It's calculated based on the utilization rate of a specific asset pool. When there's a high demand for borrowing a particular asset, the interest rate goes up. This incentivizes lenders to contribute more liquidity and discourages excessive borrowing. Borrowed assets have no fixed maturity date. Users can maintain their loan positions for as long as they uphold the collateralization requirements.

Health Factor & Risk Management

The Health Factor is a critical metric that reflects the safety of a borrowing position. It's calculated based on all collateral and borrowings of a given user. A higher Health Factor indicates a lower risk of liquidation.

If the Health Factor falls below 1, a liquidation mechanism is automatically triggered. This process sells deposited collateral to repay the debt and protect the protocol from potential defaults. To avoid liquidation and maintain borrowing flexibility, users can monitor their Health Factors and take corrective actions such as repaying a portion of the debt or adding more collateral.