The Unstoppable Margin Trading DEX offers single-sided lending opportunities, allowing lenders to earn real yield on their assets without the risk of impermanent loss. By supplying funds to margin traders, lenders can benefit from a dynamic borrow rate system that ensures fair compensation based on market demand.

How Lending Works

  1. Fund Usage: When a trader places a margin limit or market order, the Margin Engine borrows the required funds from the lending pool, based on the trader's collateral and chosen leverage. For example, if a trader wants to open a $10,000 long position with 5x leverage, and they provide $2,000 as collateral, the Margin Engine will borrow the $10,000 from the lending pool, while reserving the $2,000 as security.

  2. Spot Market Execution: The borrowed funds are used to execute the trader's order in the spot market, effectively backing the trade with real assets. In the example above, the $10,000 position is opened using the $10,000 borrowed funds, and the trade is executed on the spot market.

  3. Return of Funds: After the trade is closed, the borrowed funds along with any accrued borrow fees are returned to the lending pool, maintaining the pool's integrity and liquidity. If the trader made a profit, they will repay the borrowed $10,000 plus interest and keep the remaining profit together with the return of the $2,000 collateral. If the trade resulted in a loss, the borrowed funds are still returned to the pool, but the trader's collateral may be partially or fully liquidated to cover the loss.

Real Yield and Dynamic Borrow Rates

Real Yield

Lenders on Unstoppable earn real yield originating from the borrow rate paid by margin traders over time. As traders borrow tokens to open leveraged positions, they incur interest fees which are directly distributed to lenders as real yield in the form of the borrowed asset.

The real yield is calculated based on the following factors:

  • The current borrow rate

  • The duration of the loan (i.e., how long the trader keeps the position open)

  • The total amount borrowed from the lending pool

Dynamic Borrow Rates

The borrow rate is dynamic and correlates with the utilization rate of the total assets in the lending pools. As the demand for borrowing increases, the interest rate rises, offering lenders higher returns for their supplied assets. The interest rate is adjusted on a block-by-block basis to maintain a fair balance between supply and demand.

For example, if the lending pool has a total of $1,000,000 in assets, and $800,000 is currently borrowed by traders, the utilization rate is 80%. As the utilization rate increases, the borrow rate will also increase to incentivize more lenders to supply assets and meet the growing demand.

Borrow Rate Formula

The borrow rate on the Unstoppable Margin DEX is determined by a two-slope model that adjusts the rate based on the utilization rate of the lending pool. The formula is as follows:

BorrowRate=(Slopeβˆ—UtilizationRate)+BaseRateBorrow Rate = (Slope * Utilization Rate) + BaseRate
  • Slope is a coefficient that determines how quikcly the borrow rate increases as the ultiziation rate rises.

  • Utilization Rate is the percentage of the lending pool that is currently being borrowed by traders.

  • Base Rate is a fixed minimum rate that ensures lenders always receive a basic return on their supplied assets.

Two Slope Model

To provide a balanced and adaptive borrow rate, Unstoppable employs a two-slope model with a defined switch point.

  • Lower Utilization Slope: When the utilization rate is below the switch point (e.g., 80%), a gentler slope is used. This results in a gradual increase in the borrow rate as utilization grows, encouraging borrowing and maintaining liquidity in the pool.

  • Higher Utilization Slope: When the utilization rate exceeds the rate switch point, a steeper slope is applied. This leads to a more rapid increase in the borrow rate, incentivizing lenders to supply more assets to the pool and preventing liquidity from becoming too scarce.

This two-slope model ensures that the borrow rate remains attractive for borrowers at lower utilization levels while also adapting to market conditions and incentivizing liquidity provision at higher utilization levels.

Lender Benefits and Neutrality

Benefits of Lending on Unstoppable

  1. Attractive Returns: Earn competitive returns on your idle assets through the dynamic borrow rate system. As demand for borrowing increases, lenders can benefit from higher interest rates, maximizing their potential returns.

  2. Passive Income: Generate a steady stream of passive income by supplying assets to the lending pool. As long as there is borrowing demand, lenders can earn continuous interest on their supplied assets without actively managing their positions.

  3. Ecosystem Contribution: Play a vital role in supporting the growth and sustainability of the Unstoppable Margin DEX. By supplying assets to the lending pool, lenders help maintain a healthy liquidity balance and enable traders to access the leverage they need to execute their strategies.

Lender Neutrality

Lenders maintain a neutral position in trades due to the non-counterparty nature of their role:

  1. Independent of Trader's Performance: Lenders' returns are not linked to the profitability or losses of individual traders. Whether a trader's position results in a profit or loss, lenders still earn interest on the borrowed funds.

  2. Non-Counterparty Role: Lenders supply funds for margin traders but do not directly engage in trading against users. The borrowed funds are used to execute trades on the spot market, but lenders themselves do not take opposing positions to the traders.

  3. Consistent Yield Mechanism: Lenders earn from borrow fees paid by traders, irrespective of market movements and individual trader strategies. The real yield is determined by the borrow rate and the duration of the loan, not by the success or failure of any single trade.

Lending Pools and Risk Management

Base and Safety Module Lending Pools

Lenders can supply assets to the lending pool via two options:

  1. Base Pools: These pools provide an additional layer of protection by assuming, but may offer lower returns compared to the Base Pools. Base pools are ideal for risk-averse lenders who prioritize capital preservation over maximum yields.

  2. Safety Module Pools: These pools offer higher potential returns but also carry a higher risk of asset loss in case of liquidation failures by assuming first-loss risk. Safety module pools are ideal for experienced lenders that want to maximize their real yield.

Lenders can choose to allocate their assets between the Base and Safety Module Pools based on their risk tolerance and investment goals.

Risk Management

The primary risk for lenders is the potential asset loss due to a failure in the liquidation system. To mitigate this risk, Unstoppable employs several risk management measures:

  1. Multi-layered Monitoring: A redundant system continuously monitors positions to ensure timely liquidations. The system tracks key metrics such as collateral ratios, market prices, and margin levels to identify positions that are approaching liquidation thresholds.

  2. Soft Liquidation: Positions are liquidated incrementally to minimize the impact on lenders and the overall market. Rather than liquidating an entire position at once, the soft liquidation process gradually closes portions of the position until the collateral ratio is restored to a safe level.

  3. Safety Module Mechanism: Provides an extra layer of protection by absorbing the first-loss in case of liquidation failures. If a position cannot be liquidated in time and results in a loss greater than the trader's collateral, the Safety Module Pools will cover the excess loss before it affects the Base Pools.

In the rare event of a liquidation failure, the platform's smart contract automatically halts new trade openings to minimize further risk. However, traders can still close their existing positions, withdraw their funds, and lenders can adjust their positions as needed.

Withdrawal Limitations

Lenders may face temporary constraints in withdrawing some of their supplied assets if the lending pool is fully utilized. For example, if 100% of the assets in the pool are currently borrowed by traders, lenders will need to wait for some of these loans to be repaid before they can withdraw their funds.

To mitigate this risk, the platform adjusts borrow rates based on utilization. As utilization approaches 100%, the borrow rate increases significantly, incentivizing new lenders to supply assets and reducing the overall utilization. This mechanism helps to ensure that there is always some liquidity available for withdrawals.

Lenders can monitor the current utilization rate and adjust their positions accordingly to minimize the impact of withdrawal limitations.

Available Lending Pools

*Lenders can use WETH or ETH for deposits and withdrawals.

Interested in launching a new Margin Trading Pool on Unstoppable? Get in touch with us now: Contact & Links

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