V2 Loan Parameters — Highly Capital Efficient
Jan 25
TL;DR: Loan-to-value ratios in V2 lending pools are highly capital efficient compared to other markets.
Our priorities in releasing V2 were security and user experience. The lending pool redesign, solidity updates, and Immunefi bounties address security. The dashboard updates improve user experience by delivering more actionable details to users (see below).
However, the biggest boost to user experience is capital efficiency. With V2, Lenders can now receive better APYs given the higher LTVs offered to borrowers. Borrowers can now borrow more against the same amount of collateral with fixed durations and competitive APRs.
A loan term is defined as unique combination of credit score, LTV, loan duration and interest rate. It is only possible to borrow from the protocol by selecting an available loan term. Currently there are 110 unique loan terms in each pool. The loan terms on offer to a borrower are determined by their credit score. Those with good credit scores will benefit from a greater number of loan terms with potentially lower collateral requirements than those with lower credit scores.
Comparing loan terms offered to borrowers with a credit score 1 vs. score 10
Borrowers with a credit score of 1 are high reputable and qualify for the largest number of loan terms, including under-collateralised loans. For example a borrower with a score 1 could decide to take a 30 day loan in which case they could select from the below combinations of LTV and interest rate.
A lower LTV (over-collateralised loan) caries little credit risk thus has a lower interest rate. Whereas a high LTV (under-collateralised loan) carries higher credit risk and thus has a higher interest rate.
A borrower with credit score of 10 is not eligible for an under-collateralised loan. Thus they would be faced with a smaller selection of loan terms. In this 30-day example they have a single option of 2% APR at 85% LTV.
Please note: even the the lowest scores are offered highly competitive LTVs compared to traditional DeFi.
Also, in addition to accessing lower collateral requirements a higher score also allows the user to borrow at lower costs. In the example above a credit score 1 can take a loan with 85% LTV and pay 1.5% interest. Whereas a score 10 would pay 2% interest for the same LTV.
The full list of current loan offerings (combinations of credit score, LTV, duration and interest rate) available in all stable coin pools can be found here.
The following parameters apply across all pools and loans equally. For instance a grace period of 5 days is applied to all loans regardless of what pool they originate from, the duration of the loan or the credit score of the borrower.
More detail on specific borrowing limits is set out in the borrowing section (see here). Note that all borrowing limits are set specifically per pool. For instance ‘Max amount borrowed per user’ is currently $1,500 in both the USDC and UDST pool. Thus a user could potentially borrow $3,000 in total ($1,500 from each pool).
- Note that $ indicates the value is set in the stable coin amount of that pool. e.g. a minimum loan size of $1 in the USDT pool is set as 1 USDT.