Borrow Repayment and Liquidations

as of 02/01/2025

A USH borrow repayment, which is also a part of a liquidation process, burns all the USH being repaid. This includes both the principal and the accrued interest. This process is intentionally different than the approach taken by other over-collateralized stablecoins. The underlying reason for this difference lies on the fact that this novel approach allows the protocol to generate revenue without needing to wait for users to pay their borrow interest.

To be more precise, let’s illustrate both implementations with one example:

1. Non-Hatom’s approach: Alice takes a borrow of 10 USH. Time elapses and now she owes 11 USH because of the accrued interest. Let’s say there are only 10 USH in circulation, given that she is the only existing borrower. She repays 10 USH. The protocol will burn 9 USH and keep 1 USH as revenue. Now, the protocol puts that 1 USH in circulation, such that Alice can buy such tokens in the open market. However, time has elapsed and now she owes 1.1 USH. The process, repeats: she repays 1 USH, the protocol burns 0.9 USH, and keeps 0.1 USH as revenue. The process can continue until convergence.

2. Hatom’s approach: Alice takes a borrow of 10 USH. Time elapses and now she owes 11 USH because of the accrued interest. The protocol can mint the revenue at any point in time, i.e. 1 USH, and put it in the open market. All repaid USH gets burnt whenever Alice repays her debt.

Although at first glance Hatom’s approach seems trivial, its complexity comes from the fact that all USH borrowers do not share the same borrowing rate, as will be described in the following sections. For this reason, the novel approach consists on computing the total interest coming from all borrowers without incurring on computationally prohibited computations.