Freeliquid Surplus Auction and Freeliquid Lending.
December 15, 2021
More info regarding our feature. Please, read carefully:
⁃ 2 guides provided is a step by step explanation on how FL Lending and Surplus auction works.
⁃ this features added as a part of our stable price supporting mechanism.
⁃ ATTENTION: always double check if you have done it in the right way before sending any funds.
⁃ if you are not sure, in any case, please contact FL admins in telegram chat if you need any help
P.S. You have to know that Freeliquid is a fully governed project and we really need your participation and attention now.
Freeliquid Surplus Auction
When everything in the system is going well, USDFL accrues through collected from Vaults.
Whenever the net surplus from stability fees reaches a certain limit, that surplus in USDFL is auctioned off to external actors for FL which subsequently is burnt, thereby reducing the amount of FL in circulation.
This is done through a Surplus Auction.
Surplus Auction: The winning bidder pays FL for surplus USDFL from stability fees.
The FL received is burnt, thereby reducing the amount of FL in circulation.
Now, let’s review the mechanism of the Surplus Auction :
Summary: A Surplus Auction is used to auction off a fixed amount of surplus USDFL in the system in exchange for FL. This surplus USDFL will generally come from accumulated stability fees. In this auction, bidders compete with increasing bids of FL. Once the auction has ended, the auctioned USDFL is sent to the winning bidder, and the system burns the FL received from the winning bidder.
High-level Mechanism Process:
Freeliquid Governance voters determine the amount of surplus allowed in the system at any one time. A Surplus auction is triggered when the system has a USDFL surplus over the pre-determined amount as set by FL governance.
To determine whether the system has a net surplus, accrued stability fees and debt in the system must be added together. Any user can do this by sending the heal transaction to the system contract called Vow.
Provided there is a net surplus, the Surplus Auction is triggered when any user sends the flap transaction to the Vow contract.
When the auction begins, a fixed amount ( lot ) of USDFL is put up for sale. Bidders then bid with FL in increments greater than the minimum bid increase amount. The auction officially ends when the bid duration ends ( ttl ) without another bid OR when the auction duration ( tau ) has been reached. Once the auction ends, the FL received for the surplus USDFL is then sent to be burnt, thereby contracting the system’s FL supply.
What is Freeliquid Lending.
Freeliquid Lending is a lending platform, a Kashi framework that allows anyone to add a USDFL / USDN pair to lend, borrow, and collateralize a USDFL token.
Traditional lending projects have permitted users to add liquidity into a pool-based system.
How is Freeliquid Lending different from other lending platforms?
Like a Kashi, the main difference is that Freeliquid Lending uses a lending market and an isolated risk market, while other lending platforms calculate risks globally, so the solvency of any other token can affect the solvency of the entire platform.
Another important consequence is that the elastic interest rate is used to stimulate liquidity in a certain range.
Another consequence of the credit pair and the isolated risk market is that the Freeliquid Lending oracles are set up in such a way that the price of 1 USDFL always tends to the price of 1 USDN.
Freeliquid Lending features:
- one asset and one collateral token
- isolated risk
- isolating interest rates to match supply and demand
- own oracle
- liquidators can profit from liquidating positions
Freeliquid Lending FAQ
What are isolated risk markets?
An isolated risk market is a market in which risk is not shared collectively.
Whereas platforms like Compound and Aave have to limit their accepted collateral's to a select group of tokens because risk is shared collectively on their platforms.
How do I lend in a market and earn interest?
If you add liquidity to the Freeliquid Lending, other users can use that liquidity, and you earn interest from when they do.
How do I borrow?
To borrow on Freeliquid Lending, you need to add liquidity for the token that is paired with the token you want to borrow.
If you want to borrow USDN, and the only token that is paired with USDN is USDFL, then you have to add USDFL.
How do I create a market?
You can’t create another market in Freeliquid Lending now.
New pairs can will be added on the nearly feature.
Now we support only 1 pair now.
What is the elastic interest rate?
The elastic interest rate is a means of incentivizing liquidity to hover within an ideal range (70–80%). The elastic interest rate optimizes for utilization (borrowed assets / total assets). If the utilization is below the minimum target utilization, the interest rate halves every 8 hours. It is capped at a minimum utilization. If the utilization goes above the maximum target utilization, the interest rate doubles every eight hours. At 100%, utilization it doubles every 8 hours. At 90% it’s much slower, and at 80% it’s stable. Below 70%, it starts dropping, and at 0% it drops by halving every 8 hours. That is, the elastic interest rate is not linear. Rather, the closer utilization gets to the extremes, the faster it goes.
Why is the borrowing rate more than the supply rate?
The borrowing rate is more than the supply rate because collateral's are never maximally used, so the borrowing rate will always be slightly higher.
There is also a fee on borrowing, which is generated into the reserve, and makes the borrowing rate slightly higher.