Basics of Lending
Last updated
Last updated
As a lender, deposit ERC20 assets in any pools that fit your financial goals in order to make your stagnant capital earn an income as borrowers put that capital to work. Every pool has unique flexible properties to consider as a new lender in Teller Protocol.
Principal Token - This is the token that lenders will deposit in the pool in exchange for 'Pool Shares', a token that represents a partial stake ownership in the pool and all of its assets.
Collateral Token - This is the token that borrowers will have to lock in the Teller Protocol Collateral Manager smart contract in order to borrow principal from the pool.
Collateral Ratio- This is the ratio of the value of collateral that must be locked per unit value of principal that will be borrowed. Fair market price for each asset is determined using Uniswap Time-Weighted-Average-Price at the time of loan creation. Typically this is greater than 150% so that borrowers are obliged to repay funds borrowed from the pool even as the asset prices fluctuate.
Liquidity Threshold - This is the ratio of funds that are actively borrowed to the total estimated value of the pool. Borrowers are unable to borrow more than the liquidity threshold which helps ensure that there will be liquidity in the pool reserves for lenders to withdraw ("unstake") during day-to-day operations.
Once you have selected a Teller Lending pool with acceptable parameters for you, depositing principals to earn interest from borrowers is easy. Visit the Lender Pool page and click "Supply" in order to start lending.
Upon approving your tokens and broadcasting that transaction, a new ERC20 token will be in your wallet representing your shares for that pool. As the total value of the pool increases due to interest and repayments, the amount of principal you can redeem increases the same amount linearly. This is the vehicle through which repaid interest is earned as borrowers repay their loans on the platform.
You can burn your Pool Shares tokens at any time to withdraw principal. Teller Protocol uses a delayed-withdraw process for pools as an additional security mechanism that depends on the lending pool in order to prevent 'looped interactions' and 'sandwich attacks' also known as 'MEV'. Typically this is 5 minutes and has a maximum of 24 hours depending on the configuration of that Lending Pool.
