Borrowing & Lending
To acquire a loan, a user must first provide ADA as the main collateral to borrow against. The user’s deposited ADA collateral will also require a corresponding amount of CBLP tokens deposited alongside it. This ADA/CBLP lending ratio is dictated via on-chain governance amongst CBLP token holders. The loan amount a user wishes to borrow is always equivalent to the dollar value of their deposited ADA collateral, since the protocol only gives back a 1:1 dollar value exchange for any deposited ADA collateral. The CBLP tokens deposited alongside the borrower’s ADA collateral simply act as a security deposit for establishing a loan position, and are ALWAYS returned back in their entirety to the borrower, on closure of their loan position.
When a user initiates a loan position, the staking credentials of their wallet will be applied to their deposited ADA collateral. This means that the protocol will maintain custody of the collateral, but the user will retain control of the stake and any accrued rewards. This allows borrowers to participate in ISPOs and other incentivized staking events while still maintaining their loan position. This is a similar approach to the implementation by the Indigo Protocol.
The user initiating a loan position will also receive a non-fungible token (NFT) representing ownership of the loan position. The NFT will be minted and sent to their wallet. These NFT deeds are required to redeem the deposited collateral in the protocol, and can also be used to perform multiple trading strategies.
The Yamfore protocol primarily operates by collecting accrued interest repayments from closed loan positions. When a borrower closes their loan position to retrieve their deposited ADA and CBLP collateral, the owed principal amount as well as any accrued interest from the loan position must be paid back to the protocol. The borrower will then receive the entirety of their deposited ADA and CBLP collateral back. The collected principal and interest amount are then sent to the stablecoin treasury to facilitate further borrowing. As stated before, the CBLP tokens deposited alongside the borrower’s ADA collateral simply act as a security deposit for establishing a loan position, and are always returned in their entirety to the borrower on closure of their loan position. In summary, borrowers must repay the principal amount and accrued interest before their loan position can be closed and their ADA and CBLP collateral can be redeemed. During their loan term, borrowers are not subject to margin calls or liquidation risk, regardless of the price action of their collateral. Borrowers also do not have to make ongoing interest payments and have an indefinite loan term.
The ADA and CBLP lending ratio is a governance-controlled parameter of the protocol. It will be set at 50% ADA and 50% CBLP for the protocol’s launch. During times of high demand, CBLP token holders can vote to increase the lending ratio. This ensures that a higher allocation of CBLP tokens is required for a borrower’s loan position, which brings added value to CBLP token holders due to the surplus demand in the open market. During times of low demand, the rates can be adjusted accordingly to ensure that the protocol’s treasury remains highly utilized and capital efficient at all times.
Current ADA & CBLP lending ratio
Upon launch, Yamfore will utilize a diverse basket of stablecoins. These stablecoins will be backed by verifiable on-chain assets, and be native to the Cardano blockchain, not bridged from other ecosystems. These are the initial criteria for stablecoin solutions launching in conjunction with Yamfore, but the list of accepted stablecoin solutions can be added to or removed via on-chain governance.
Yamfore handles all stablecoins received in its treasury as transitory assets. This is due to the protocol’s main objective of keeping a high level of capital efficiency, thus immediately lending out any capital received to borrowers. Because of this, stablecoins are never “stored” in the protocol’s stablecoin treasury for any significant periods of time. The exact type of stablecoin given to a borrower as payment for their loan position will be determined by the protocol at the moment of a loan initiation, and will mainly be subject to availability.
An individual can borrow as much as they desire, provided they have the sufficient $CBLP collateral amount to borrow against. There are only limitations on the minimum loan size that can be taken at a time, but there are no restrictions on the maximum amount a borrower can request. This is all, of course, assuming that funds are available to be lent from the protocol's stablecoin treasury.
The Yamfore protocol does not accept direct lending capital. Instead, all crypto-backed loans are funded directly from the protocol's internal stablecoin treasury. This was done to remove many of the counterparty requirements of lenders, such as ensuring that the value of the borrower's collateral never falls below a certain threshold or requiring ongoing interest payments.
Borrowers do not need to repay their loans in the traditional sense. The Yamfore protocol collects accrued interest from closed loan positions. When a borrower closes their loan position to retrieve their deposited ADA & CBLP collateral, they must pay back the principal amount and accrued interest to the protocol. The borrower will then receive their deposited ADA & CBLP collateral back.
The interest charged to a borrower’s loan position is calculated using two parameters: a simple yearly fixed interest rate and a minimum interest rate. Both of these parameters are controlled by the protocol’s governance. The yearly fixed interest rate is calculated against the borrower’s principal amount, with any accrued interest added to the total debt of the loan on a per-epoch basis. The minimum interest figure is a one-time fee calculated from the borrower’s principal amount and added to the total debt of the loan position when the loan is created.
Eg: A borrower with a $100,000 loan at a 7% fixed interest rate and a 10% minimum interest rate will incur $7,000 in yearly interest. The 10% minimum interest increases the owed principal amount by $10,000, bringing the total debt position to $110,000.
In conclusion, the borrower will have a total debt position of $110,000 with a yearly recurring fixed interest of $7,000. The fixed interest rate is charged on a per-epoch basis at a rate of $95.89 per epoch (calculated as $7,000 / 73).
Simply put, nothing. The protocol takes on the risk of price fluctuations, which allows it to offer more favorable loan terms to borrowers. This results in more competitive loan terms than traditional lending protocols and platforms, and it gives borrowers the assurance that their loan positions are secured regardless of any volatility in the financial markets.
For a borrower to close their loan position, they simply have to pay back the owed principal amount, and any accrued interest. The borrower will then receive back their deposited ADA & CBLP collateral.
The Yamfore protocol holds an internal treasury of 500 million $CBLP tokens, which is 50% of the total fixed supply. This treasury is referred to as the $CBLP treasury, and it enables individuals to indirectly provide liquidity to Yamfore by depositing stablecoins into the protocol's $CBLP auction portal. In return, individuals will acquire an allocation of $CBLP tokens based on fair market supply and demand.
The main risk for borrowers who initiate a crypto-backed loan through Yamfore is over-exposure to the protocol's native utility and governance token, $CBLP. The $CBLP token is inherently riskier than ADA due to its relatively limited use case and smaller market capitalization. Ideally, any user taking out a crypto-backed loan against their ADA would prefer to have the majority, if not all, of their deposited collateral denominated in ADA.
Although borrowers' deposited $CBLP tokens are always returned in full upon closure of a loan position, the market value of those tokens can vary greatly from the start of the loan term to the end. It is possible for a borrower to close their loan position and be in profit on their deposited ADA collateral while being neutral or even down in price on their deposited $CBLP collateral.