Vendor Finance: Lending
Becoming a lender is simple on Vendor Finance! In the article we will walk through an example of just how easy it is! First things first, as a lender you are able to set all your own terms. The parameters you are able to set are the following:
- Collateral Token
- Lend Token
- Lend Ratio
- Expiry or Repayment Due Date (same thing)
- Fixed Interest Rate
Keep in mind that there are no liquidations for borrowers but there are defaults, which means if a borrower does not repay, you end up with all of their collateral.
To start your lending journey, you will head over to the “Create Pool” tab.
After clicking on that tab, you will be greeted by the following page, this is the part where you get to select all your own terms like we mentioned in the beginning of the article!
Choose the collateral you wish to accept, the token you wish to lend out, the lend ratio, the expiry and the interest rate!
Terms to know as a lender:
- The Lend Ratio is very simple, it is the fixed amount of lend token you will give to a borrower for every 1 unit of collateral they deposited. This ratio will stay the same throughout the term and it cannot be changed. In the above picture, if a Lend Ratio of 1,000 were chosen that would mean for every 1 wETH deposited as collateral by the borrower, the lender would lend out 1,000 USDC.
- The Expiry is the time at which the loan will expire, this is also the time at which the borrower will need to repay by.
- The Annual Interest Rate (APR) by default is decaying which means it annualizes the interest rate throughout the term period. This makes it so whenever someone borrows they are always paying the APR you set as a lender. The rate will gradually decrease throughout the time of the loan period to ensure it hits your target APR.
Bonus: You can also whitelist specific borrowers and allow for undercollateralized loans, but this is not a requirement, so you can read more about that on our docs page (https://docs.vendor.finance/how-to-use/lend/private-pools)
Tips on setting the Lend Ratio & Interest Rate:
Lend Ratio: To recap, the lend ratio is very important. It sets the ratio for how many tokens you will lend out per 1 unit of deposited collateral!
- An example of how you may come up with a lend ratio can be to look at the 10-Day SMA (Simple moving average) of a token price. In this case we will take ETH’s 10-Day SMA which is 1190. Now you have a base price you can adjust from for a 30 day term. If we subtract 20% off that 10-Day SMA, you end up with a price of 952. This 952 could then be set as the lend ratio! This would be near a 75% LTV if the price of ETH were at 1300.
- The below image represent a Lend Ratio of 952 with USDC being the lent out token. When creating this pool you are saying for every 1 ETH deposited, as the lender, you will lend out 952 USDC. You can also see the on the graph that the red line represents the lend ratio and the purple shadowing represents the 30 day price action. As you can see the price action never went below that lend ratio of 952! This means if by the expiry the red line is below the purple, borrowers are incentivized to repay. If they default in this case, you receive collateral worth more than you loaned out!
- A good way to find Moving Averages and other technicals for tokens is to use: https://www.tradingview.com/symbols/ETHUSD/technicals/.
- Also you can play with the presets (percents under lend ratio), the red line will move up and down when you change them, which helps you visualize! You can even enter a custom on in the field (custom is not a percent, it is the amount of token).
Interest Rate: The interest rate is another very important part of this!
- A strategy you can use is looking at other lending/borrowing platforms such as AAVE. This can easily be seen using DeFiLlama’s yield page or by going directly other protocol’s sites.
- Since borrowers on Vendor are never liquidated we believe you can almost always ask for higher interest rates than those you compare to! Borrowers are willing to pay a premium to never be liquidated! See below for an example below of protocols rates from DeFiLlama!
Note: These are just suggestions from what we have seen lenders doing and not financial advice!
Once you have set all the parameters for the pool that you wish to lend for, you will then have to review and deploy your pool.
Once the pool is deployed, all that is left to do is to fund the pool! This way borrowers can borrow from you! Head over the to “My Pools” tab -> Lent -> then find the pool you created and needs funding!
Click the pool, and you will see the screen on the left hand side! Just add funds!
That’s it! You now have created a lending pool in which anyone can borrow from. You will be able to add more funds or withdraw any unused fund at anytime. Once the expiry date comes, you can then collect your interest, initial capital and any defaults under the same “My Pools” tab!
Bonus: Rollovers
Rollover pools can be created (not mandatory), which allows for a borrower to extend their loan. All you must do is create a pool with the same collateral and lend token with a further out expiration. You do not even need to seed the pool.
Rollover is a process of migrating borrowers debt from the original pool (origin pool) to a different pool with a longer repayment due date (destination pool).
