Fundamental Functions

as of 02/01/2025

Supplying and Borrowing Assets are fundamental functions within a lending protocol. These processes allow users to contribute to liquidity pools, earn interest on supplied assets, and access additional funds using their collateral.

Supplying Assets

Supplying assets involves depositing or lending digital assets into the protocol's liquidity pools. By doing so, users contribute to the pool of funds available for borrowers, while earning interest paid by those who borrow. Supplying assets not only enhances liquidity within the platform but also enables users to generate passive income and diversify their portfolios.

Users can supply assets to a money market only if it is below its supply cap if such a cap is implemented. For more details regarding any market caps, please refer to the "Markets" page.

Earning Interest

When you deposit tokens into Hatom's Lending Protocol, the system mints HTokens and credits them to your account as a receipt, confirming your contribution to the protocol. To withdraw your deposited assets, you must return these HTokens.

Upon withdrawal, the amount you receive exceeds your initial deposit due to the accrued interest, which is based on the token's Annual Percentage Yield (APY). Hatom’s Money Markets feature dynamic APYs, meaning interest rates fluctuate over time. Lender interest rates are directly tied to the rates paid by borrowers, minus the protocol’s Reserve Factor for each Money Market.

For example, if you deposit 10 EGLD at an average APY of 7%, your wallet will display the equivalent value in hEGLD at the time of deposit. After one year, when you withdraw, you’ll return your hEGLD and receive 10.7 EGLD—your original 10 EGLD plus the 7% interest earned.

For more detailed information on HTokens and how the Hatom Protocol works, refer to the official documentation.

Activating as Collateral

Once assets are supplied in the Lending Protocol, users can activate them as collateral. Activating collateral grants Borrowing Capacity, allowing users to secure loans against the value of their collateralized assets. The amount a user can borrow depends on the value of the collateral and the borrowing limits set by the protocol.

Users should carefully manage their Borrowing Power, as over-leveraging or excessive borrowing increases risk, particularly if the market value of the collateral drops. In such cases, users risk liquidation, where a liquidator may repay up to 50% of the loan, claiming an equivalent amount from the collateral plus an 8% liquidation penalty.

Each asset used as collateral has a specific Borrow Limit, known as the Collateral Factor. Assets with higher liquidity generally have a higher Collateral Factor, while lower-liquidity assets have a lower Collateral Factor. The Collateral Factor determines the maximum percentage of an asset's value that can be borrowed. For example, with a 70% Collateral Factor, a user can borrow up to $700 for every $1,000 worth of collateralized assets.

If multiple assets with different Collateral Factors are used, the protocol calculates a weighted average to determine the overall borrowing limit. For example, if a user has two assets with Collateral Factors of 70% and 60%, the average Collateral Factor is determined based on the relative value of each asset. If both assets are of equal value, the average Collateral Factor would be 65%.

Withdraw Assets

Withdrawals from the Lending Protocol are immediate, with no cooldown period required. However, users must ensure that their assets are not being used as collateral for any active loans before initiating a withdrawal.

When withdrawing, users must return the HTokens they received at the time of deposit. These HTokens are then burned by the protocol, and in return, the user receives their originally deposited assets, along with any accrued interest.

Withdrawals are subject to the availability of sufficient liquidity in the pool. If a significant portion of assets are loaned out and liquidity is limited, users may need to wait until more assets are returned to the pool before completing their withdrawal.

Borrowing Assets

Borrowing assets enables users to access additional funds using their supplied assets as collateral. The borrowing amount is determined by the value of the collateral and the collateralization ratio set by the protocol.

A user’s borrowing capacity in the Lending Protocol is based on the average Collateral Factor of all the assets they have activated as collateral, which reflects their overall Borrowing Capacity. It's crucial to monitor the "Borrow Limit Used" indicator on the protocol’s dashboard, which visually represents the proportion of the available borrow limit currently being utilized.

As users take out more loans, the percentage on the "Borrow Limit Used" bar increases, reflecting the ratio of the loan's value to the collateral's value. It’s crucial for users to ensure this percentage does not reach 100%, as this indicates full utilization of the borrowing limit, putting them at risk of Liquidation.

To maintain a safe borrowing position, the loan-to-collateral ratio should remain below the borrowing limit. This helps prevent over-leveraging, which could trigger liquidation in case of a market downturn or collateral depreciation. Maintaining a buffer within the borrowing limit is a prudent strategy to manage risk effectively in the volatile cryptocurrency market.

Users can borrow from the pool only if there is sufficient liquidity and the borrow cap (if set) has not been reached. If liquidity is depleted or the borrow cap is fulfilled, new borrowings cannot be initiated.

Repaying a Loan

The Lending Protocol offers flexibility in loan repayment, allowing borrowers to manage their loans without a fixed repayment schedule. Borrowers can repay their loans at their convenience but should be mindful that interest accrues over time, which can increase their Borrow Limit Used percentage. A higher Borrow Limit Used percentage raises the risk of Liquidation, so regular monitoring of loan positions is advisable.

To repay your loan, follow these steps:

1. Navigate to the 'Borrowings' section of your Dashboard.

2. Select the borrowed asset, click the Repay button, choose the amount you wish to repay, and confirm the transaction.

If repaying the full loan, you may notice a small remaining balance, known as "Dust," due to the continuous accrual of interest. To clear this dust, click the "Max" button and ensure the "Repay Dust" option is selected. This will slightly exceed the remaining balance, fully repaying the loan, with any excess funds returned to your wallet in the same transaction.

Example:

• Suppose you want to repay a loan of 10.1 EGLD.

• In the Repay section, click Max and ensure the Remove Dust option is selected.

• After confirming, a transaction of approximately 10.1101 EGLD will be processed.

• Once the transaction is confirmed in your wallet, your total loan is repaid, and you will receive approximately 0.0101 EGLD back.

Loans must be repaid using the same asset type originally borrowed. For instance, if you borrowed USDC, the repayment must be made in USDC, including any accrued interest over the loan period.