The lending pool is funded and added to via a small trade tax and can be refilled from earned protocol rewards by the team as needed.
As pool utilization goes up, trade taxes will trend upwards to refill the lending pool. In addition to trade taxes, borrow interest rates will also trend upwards so that as borrowers pay back their loans, collected fees can also be used to refill the lending pool as needed.
Pool Fund Custodian
The lending pool business logic and all borrowable ETH is stored in the lending pool contract. For more technical information on functionality you can review the HYPE smart contract audit conducted by Solidity Finance or ask a team member for any clarification.
2% of any borrowed ETH from a loan is distributed to all HYPE holders as protocol rewards.
Similar to the token trade taxes, interest rates are calculated based on the lending pool size & utilization compared to the current market cap of HYPE. Interest rates range between 2% - 15% APR.
As pool utilization increases, meaning lower available ETH in the pool to borrow, interest rates increase to account for demand. When utilization goes down, meaning ETH is added to the pool, interest rates decrease to incentivize new loans.
Loan to Value (LTV)
Loan to Value (LTV) is the ratio of the value of your borrowed assets to the value of collateral put up against your loan. A maximum LTV of 60% will be used at the start and will be adjusted over time as the market cap of HYPE grows, as well as, additional collateral options being added.
With a LTV ratio of 60%, up to 0.6 ETH can be borrowed for every 1 ETH worth of collateral used to secure the loan.
In addition to HYPE, which will generally always be available to borrow against, we will periodically review and add/remove assets that contain highly liquid Uniswap V3 pools with on-chain oracle cardinalities long enough to support a 5-min TWAP price to be used as collateral. Some examples of assets that contain such pools and are available include WBTC, LINK, and SHIB.
When a borrower accepts a loan, they will receive a receipt of their loan in the form of an NFT (ticker), which can be transferred as needed. The owner of the NFT is responsible for paying back the loan to receive the initial collateral used for the loan. These NFTs will be automatically burned if the loan defaults and is liquidated.