Loans
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At Debita, loans are time-based, rather than the usual price-based approach, ensuring that a loan concludes when the borrower either fully repays their debt or defaults it.
In an event of default, lenders retain the borrower's collateral. This system guarantees that once a loan is initiated, neither oracles nor external parties can interfere with the agreed upon deal.
In case of unsplittable assets (eg. veNFTs), unless the lender chooses to be the sole lender of a loan (lonely lender), the defaulted asset will go onto a Dutch Action and the proceeds of that auction will be split between all lenders on that loan proportionally to the amount of debt they were owed.
Once a loan is created, the only ones able to interact with it are the lender, borrower and, in case of an unsplittable asset being defaulted, the Dutch Auction contract.
To facilitate matching through the aggregator, a single borrow order can be matched by multiple lend orders. An individual lend order that cannot be matched with a borrow order on its own can potentially be combined with others to meet the criteria of the borrow order through a compatible weighted average. This system is designed to ensure no potential combination is overlooked, thereby maximizing liquidity.
In the process of creating a borrow order, the borrower has the option to specify all accepted principles along with their corresponding parameters. Consequently, a loan agreement might be structured the following way:
Debita employs time-based liquidation policies, ensuring loan defaults occur solely due to missed payment deadlines. Fluctuations in price do not trigger defaults, maintaining financial stability unless the borrower fails to meet payment commitments on schedule.
In order for a borrower to reclaim their collateral they must repay their debt in its entirety before the end of the loan.
If there is more than one lender participating in a loan, the borrower has the ability to choose to repay the debt owed to any single one of them and reclaim, proportionally, part of their collateral.
For unsplittable NFTs as collateral, the debt must be paid back in full in order to reclaim it. If partial repayments have been made, the borrower is granted with their proportional share of the auction proceeds. Example: Collateral: 2000 veAERO Borrowed amount: 1000 USDC Lenders: 4 (250 USDC each) Borrower pays back 2 lenders and defaults on the other 2 veAERO is auctioned and sold Borrower receives 2/4 of the final split proceeds
The first 1/10 of the loan's duration will have a fixed interest of 10% the total loan's interest. From that point on, the interest will increase at the constant APR rate.
What does that mean for users?
Lender:
A minimum 10% of the total interest guaranteed and constant APR after that with the possibility of having their funds back into the market ready for another loan.
Borrower:
After 1/10 of the duration has passed, an early repayment means a lower final interest.
At the moment of repayment, the borrower can specify to which lender they want to repay their debt to; this can help to pay off the orders with higher interest earlier.
Example: You're paying a weighted average of 30% APR to 5 lenders and 1 of them is asking for 40% APR, if you pay back that single lender back, the average APR you will pay from that point on is going to be lower than 30%.
The deadline for the payment of a loan is specified beforehand by the order creators, both lender and borrower. Some lenders might have a longer maximum duration than others and lend to the same borrower. In that case, the deadline for paying back the debt is dictated by the parameters of the lender with the shortest maximum duration.
Once one loan is defaulted, all loans are defaulted.
Example: There are 5 lenders in a loan, 3 of them set a maximum loan duration at 40 days, 1 at 35 days and 1 at 30 days. If the debt isn't repaid in 30 days, all of the loans will be defaulted at the same time.
It is possible, though, to repay the shortest duration loans and keep going with others.
If no loan is defaulted, the deadline for the default event adjusts to be the deadline for the shortest unpaid duration loan active.
Following the same example above: If the borrower pays back the 30 day maximum duration loan, the next default event will be at the 35 day mark. If that one is also paid back, then it is the 45 day mark.
