Lending

Overview

Users can lend tokens to FWX, with each token having its separate lending pool. Similar to Compound Finance and Aave, users can provide liquidity with a single token type. The provided liquidity can be borrowed with over-collateralization by other users or used for hedging futures positions. Yield comes from three sources: loans on the platform, a portion of futures trading fees, and bonus interest paid in the form of FWX governance tokens. However, the bonus interest is typically kept minimal or at zero to prevent governance token inflation.

FWX utilizes NFT membership records, enabling users to monitor principal and interest separately. Interest can be claimed without needing to unlend tokens. Lenders can withdraw their tokens at any time, except when LBPs' liquidity is insufficient due to high demand, in which case total interest is automatically claimed upon unlending all tokens. Higher-tier membership NFT holders receive additional interest based on their tier. However, lending in FWX carries risks, as liquidity providers may not fully unlend tokens if the borrowed tokens cannot be fully repaid.

Interest Sources

Total interest is generated from three sources: interest from loans, trading fees, and bonus interest. The first two yield streams are in the same currency as that being lent, while the bonus interest is provided in FWX governance tokens.

1. Interest from Loans: This interest is paid by borrowers who create loans which borrow token form LPBs. The collected interest is divided into two parts, with a 90:10 ratio. 90% is directly distributed to lenders in proportion to their lending amounts, while the remaining 10% serves as an operational fee for FWX. However, higher-tier membership users may receive a more favorable ratio, benefiting them accordingly.

2. Trading fees: In addition to borrower interest, liquidity providers benefit from an additional yield derived from futures trading fees. Since the lending pool liquidity is utilized for hedging futures positions, 20% of the trading fees are distributed to the liquidity providers.

3. Bonus interest: FWX rewards LBPs with bonus interest, paid in a constant number of tokens per block and directly distributed to lenders. The number of tokens per block is campaign-based, and higher-tier membership NFT holders receive more substantial bonus interest. Under normal circumstances, bonus interest is deliberately minimized or kept at zero to prevent FWX token inflation.

Lending APR Formula

The APR for lending for general membership is calculated using the formula below. The percentages of 90% can be higher for higher membership tiers. The APR for borrowing seen in the formula is a peicewise linear function of a utilization rate, with an increasing slope.

$$\begin{equation*} \text{APR}^\text{lending}=\frac{90\text{\%}\times \sum\limits_{i=1}^N\left(\text{APR}^\text{borrowing}_i\times \text{borrowingAmount}_i\right)+20\text{\%}\times\delta\times \text{dailyTradingVolume}\times 365}{\text{totalLendingAmount}}. \end{equation*}$$