📤Borrowing

LENX Lend Borrow Mechanism

Each pair allows users to take loans in Asset Tokens by providing a sufficient amount of Collateral Tokens as security.

Interest continuously accumulates on any active loan, leading to an increase in the total debt as it includes the accrued interest. To reclaim the collateral, borrowers must pay back the initial loan amount plus all the interest that has accumulated.

Illustration of the Borrowing Process

To monitor borrowed amounts, interest, and outstanding shares, we utilize the Borrow Vault Account, mirroring the function of the Asset Vault Account for tracking assets and shares.

Consider Alice borrows 100 FRAX (equivalent to $100) using xBTC worth $150 as collateral. After accumulating 10 FRAX in interest, the Borrow Vault Account details are as follows:

• Total Amount Borrowed: 110 FRAX

• Shares: 100

• Alice's Collateral: $150 in xBTC

• Alice's Borrow Share Balance: 100

Alice's loan remains within a safe threshold as her Loan-To-Value (LTV) ratio is 73.33% (110 / 150), below the maximum limit of 75%. The LTV ratio is calculated by valuing her loan at $110 (determined by multiplying her 100 shares by the Borrow Share Price of 1.10, and then by the FRAX price in USD), against her $150 collateral, resulting in 73.33%.

Bob then takes a loan of 100 FRAX against $175 worth of xBTC. With the current Borrow Share Price of 1.10 (110 / 100), his Borrow Share Balance comes to about 90.91 (100 / 1.10). Unlike lenders who receive lTokens, borrowers' share balances are recorded in the Pair. The Borrow Vault Account updates to:

• Total Amount Borrowed: 210 FRAX

• Shares: 190.91

• Alice's and Bob's Collateral Amounts: $150 and $175 in ETH, respectively

• Alice's and Bob's Borrow Share Balances: 100 and 90.91, respectively

With an additional 20 FRAX of interest accrued, the account now shows:

• Total Amount Borrowed: 230 FRAX

• Shares: 190.91

The new Borrow Share Price is 1.2048 (230 / 190.91). Alice needs to pay back 120.48 FRAX, and Bob 109.52 FRAX, based on their share balances multiplied by the new Share Price.

As interest accrues, the repayment amount increases, affecting the LTV ratios of each borrower's position:

• Alice's LTV: 80.32% ($120.48/$150)

• Bob's LTV: 62.58% ($109.52/$175)

With the accrued interest, Alice's LTV surpasses the 75% maximum, jeopardizing her position with the risk of liquidation.