Nitron (Lend & Borrow)

Introduction

Nitron is the native Collaterized Debt Position (CDP) module on Demex that allows users to earn yield on their assets, as well as take out loans backed by their deposited assets.

Nitron is permissionless and cross-chain, so users can lend or borrow assets across multiple chains.

Nitron also allows the minting of $USC, a decentralized stablecoin meant to follow the value of the US dollar.

Rationale

Money markets are crucial for the proper pricing of tokens, as well as for orderly flow of capital between market participants in the DeFi economy. Stablecoins also continue to play a core pillar in DeFi, and for a long time, centralized stablecoins were a good choice.

But with the recent and sudden censorship activities from centralized stablecoins, we believe that the need for decentralized stablecoins has begun stirring once again.

We believe that a decentralized economy requires a decentralized stablecoin, but we have learned from the fall of Terra's $UST and will be using a safe, proven, and sustainable model.

With an increasingly multi-chain world, there will be an increased the demand for permissionless lending and borrowing of assets. Thus, having a money market on Carbon synergizes well with our multi-chain, mult-token model, and will open up strategies and opportunities for users of the protocol.

Overview

Lend

Users can earn interest by lending out idle assets and also use them as collateral to borrow other assets depending on their Loan to Value (LTV).

Loan to Value

The loan to value (LTV) ratio indicates the maximum value of assets that can be borrowed against a specific collateral. It is expressed as a percentage, for example if ATOM has an LTV of 50%, for every 1 ATOM worth of collateral deposited, borrowers can borrow a maximum of 0.5 ATOM worth of whichever asset they wish to borrow.

Once a borrow occurs, the LTV will change based on changes in the market price of the collateral or borrowed asset changes, so users have to monitor closely to ensure their LTV does not hit the liquidation threshold to avoid liquidations. Liquidation Threshhold The liquidation threshold is the percentage at which a position is defined as undercollateralised. For example, a liquidation threshold of 80% means that if the loan value rises above 80% of the collateral, the position is undercollateralised and is open to being liquidated.

The difference between the LTV and the liquidation threshold acts as a buffer, and is a safety mechanism in place for borrowers to prevent instant liquidations if the maximum LTV was utilized.

Collateral

Collateral refers to the assets that one must pledge in order to take out a loan. This is to ensure the credibility of the borrower and to secure the loan. In the event that the borrower defaults, the collateral can be seized as a failsafe to repay the loan value. To ensure the safety of all user’s funds, all loans are over-collateralized. For example, for $100 of collateral locked in, a user can borrow ~$75 worth of assets.

If the borrower’s collateral’s nominal value falls at some point, against the value of the loan, they are at a risk of liquidation.

To prevent this scenario, Nitron provides the option to adjust the user's collateral accordingly to stabilize the user's position. This is an advanced feature that can affect the user's health factor when the users add or remove collateral, hence ensure that users are careful while adjusting the same.

Borrow

Users can borrow their desired asset by taking out a loan on Nitron.

In order to borrow an asset, users have to lock in a certain amount of assets as collateral. There is no expiry or obligation date for users to repay the loan, as long as the loan has sufficient collateral backing it.

Health factor

Health factor refers to the numerical scale of the safety of a user's collateral against their borrowings. The health factor aggregates the user's position across all assets to assess the point at which the user is subject to liquidation.

The higher the user's health factor, the lower the chance of liquidation. At any given time, if a user’s health factor is falling to close to 1, the user can add more collateral or return the user's borrowings to stabilise their position.

If the Health Factor falls below 1, a user’s collateral may be liquidated until the Health Factor goes back above 1.

Interest

The interest, also known as the borrow APY, is the additional cost of taking a loan. At the time of repayment, the user pays back the borrowed amount plus the interest accrued on the loan. The interest amount is based on the demand and supply of the respective asset in the money market.

Net APY

Net APY is the net yield that a user earns based on the combined effect of their lendings and borrowings.

Net APY% = Aggregated APY earned from each individual market + external incentives earned - interest paid on loans

If a user borrows more than they lend, they will have a negative APY% as more interest is paid than earned.

Mint

Users can mint $USC by locking in a certain amount of whitelisted assets as collateral. In order to withdraw the collateral, users must burn the stablecoin plus the accrued interest. Learn more about $USC here.

How it Works

The next section goes into details on the various operations that can be done via the CDP module.

For frequently asked questions, check out our FAQ page!