Borrowing

When taking a loan from FWX, borrowers are required to offer tokens as security. The value of the tokens used as collateral must always be higher than the amount of the loan. Initially, the maximum loan-to-value (LTV) ratio is set at 70%, which implies that the highest amount of loan a borrower can receive is 70% of the value of their deposited tokens. If the LTV ratio surpasses 80%, the loan will be liquidated. The interest rate for borrowing is non-compounding and remains consistent for a 28-day period. To preserve stability in the pool, a minimum of three days' worth of interest is charged for each loan.

Borrowing APRs

The interest from the borrower is influenced by the relationship between the demand for borrowing and the supply of lending. To establish a clear link between the supply and demand of tokens in the pool and APRs, a utilization rate is computed by comparing the amount of borrowing and lending. The utilization rate serves as a gauge of balance between borrowing and lending. A high utilization rate corresponds to a high APY, while a low utilization rate results in a lower APY.

$$\begin{equation*} \text{utilizationRate} = \frac{\text{totalBorrowingAmount}}{\text{totalLendingAmount}} \end{equation*}$$

The utilization rate represents the percentage of tokens that are being borrowed from the pool. It has a direct correlation with the borrowing rate.

FWX protocol employs a piece-wise linear function to model the borrowing APRs curve. To achieve this, we divide the utilization rate, ranging from 0% to 100%, into n intervals at specific points

$$U_0, U_1, U_2,\dots, U_n$$

Each Ui has a corresponding borrowing APR Ri. Using this information, we model the borrowing APRs for each interval as a linear function with a slope of

$$\frac{R_{i}-R_{i-1}}{U_{i}-U_{i-1}}$$

Consequently, the borrowing APRs at any given utilization rate X can be expressed as a standard function.

$$\begin{equation*} \text{APR}^{\text{borrowing}}(X) = R_0 + \sum_{i=1}^n \max\left\{0,\min\big\{\max\big\{\omega X, U_{i-1}\big\},U_{i}\big\}-U_{i-1}\right\}\left(\frac{R_{i}-R_{i-1}}{U_{i}-U_{i-1}}\right) \%, \end{equation*}$$

$$where\ U_0=0\%, U_n=\frac{100}{\omega}\% \ and \ U_{i-1} < U_{i}\ for \ all \ i = 1, 2, 3, \ldots, n, \ \omega=\max\left\{1,\frac{\ell_{p^*}}{\ell_p}\right\}, R_{0} \ is the base borrowing rate (\%), \ell_p is \ the \ liquidity pool, \ and \ \ell_{p^*} is \ the \ expected liquidity pool.$$

Loan Renewal and Penalty

If a user borrows tokens using a certain amount of collateral, resulting in an LTV ratio of less than 70%, the borrower is required to pay interest at a specified rate over a period of 28 days. Once this period is over, the borrower can renew their borrowing by selecting the "rollover" button, which will update the borrowing rate for the next 28-day period.

However, if the borrower fails to take any action after 28 days, the platform will charge the delay interest at the old rate along with penalty fees amounting to 5 times such interest rate. This will continue until the user takes some action or a third party presses the "rollover" button on the borrower interface.