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Glossary Of Terms

Account Health​

The Account Health is a measure of how close your account is to being liquidated. An Account Health below 1.0 may be liquidated at any time. The Account Health is a ratio of the account's Collateral Factor-adjusted collateral value (in USD) divided by the Market Factor-adjusted net borrow value (in USD). Click here for a deeper, more technical explanation on Account Health.

APR​

The Annual Percentage Rate is the simple interest rate paid from the borrower to the lender normalized over one year. This lets lenders/borrowers easily compare the interest rate of one loan versus another even if they might have different Maturity times.

Example: Suppose the APR is 10%, and that the lender lends 100 USDC to the borrower.

  • After 30 days, the lender will accrue 100 (10% 30 / 365) = 0.82 USDC of interest.
  • After 180 days, the lender will accrue 100 (10% 180 / 365) = 4.93 USDC of interest.
  • After 365 days, the lender will accrue 100 (10% 365 / 365) = 10 USDC of interest.

Learn more about APR.

Borrow Value (Real Borrow Value)​

The Borrow Value(or Real Borrow Value) is the aggregated value of all borrows across all Markets of an account in USD as determined by the latest Chainlink oracle price.

Collateral Factor​

The Collateral Factor is a number from 0-100% assigned to every Asset that represents a weighting of how much lesser the Qonstant collateral system will mark the value of collateral posted in that Asset from its current market price due, to the perceived market risk of the collateral.

Generally, large, liquid, safer Assets have high Collateral Factors, while small, illiquid, riskier Assets have low Collateral Factors. If an Asset has a 0% Collateral Factor, it can’t be used as collateral, though it can still be lent or borrowed in Qonstant Markets.

Collateral Value (Real Collateral Value)​

The Collateral Value (or Real Collateral Value) is the aggregated value of all collateral an account has deposited in USD as determined by the latest Chainlink oracle price.

Credit Limit​

As part of the Credit Facility for undercollateralized borrowing, some permissioned accounts may be granted a risk-adjusted Credit Limit, generally in conjunction with a bespoke Initial Account Health and Minimum Account Health ratios. The Credit Limit specifies how much the account may borrow under this bespoke Credit Facility (in USD), risk-adjusted by the individual Market Factors of the assets which the account may want to borrow.

Initial Account Health​

The minimum Account Health required when initially taking out a new loan. The Initial Account Health provides a safety buffer above the Minimum Account Health so that an account cannot accidentally be immediately liquidated when taking out a loan.

Lend Value (Real Lend Value)​

The Lend Value (or Real Lend Value) is the aggregated value of all lends across all Markets of an account in USD as determined by the latest Chainlink oracle price.

Market​

A Market is the place where users can borrow or lend. A Market is made up of two components:

  1. Underlying ERC20 Token, which is the token which is being borrowed or lent.
  2. Maturity, which is when borrowers must repay their loans, and when lenders may redeem their qTokens for the underlying token.

The naming convention of Markets is [TOKEN SYMBOL][MONTH][YEAR]. For example, the USDCJUL22 Market is where users may borrow or lend USDC tokens, maturing on 29th July 2022, 4:00 PM UTC.

Important to note: When a borrower repays their loan, they are repaying to the Market smart contract. And when a lender is redeeming their repayments, they are receiving it from the Market smart contract. This is a subtle point which differentiates Qonstant from a direct peer-to-peer model, and allows for greater capital efficiency! This allows borrowing and lending to be interpreted as inverses of each other. If you lent from a Market, you can effectively close your loan early by borrowing the same amount (or vice versa, if you were originally borrowing), rather than having to wait the full term for the loan to mature.

Market Factor​

The Market Factor is a number from 0-100% assigned to every Market that represents a weighting of how much higher the Qonstant collateral system will mark the value of the amount a user has borrowed in that Market from its current market price, due to the perceived market risk of the underlying token.

Generally, large, liquid, safer Markets have high Market Factors, while small, illiquid, risker Markets have low Market Factors.

Maturity​

The Maturity time is the time after which a Market closes. No Quotes may be published or accepted after the Maturity time. This is also the time when borrowers need to repay their loans. By convention, the Maturity time is set to be the last weekday of the month at 4:00 PM UTC.

Minimum Account Health​

Also known as the Liquidation Ratio. If your Account Health falls below the minimum the Minimum Account Health, your account is eligible to be liquidated.

Protocol Fees​

Protocol fees are taken from both lenders and borrowers anytime a loan is executed. The Protocol Fee is quoted in APR terms and is prorated to the duration of the loan.

Example: Alice loans Bob 100 USDC due in 3 months and the Protocol Fee is 1% APR. Then, the fee paid in net amount is 1% (3 / 12) 100 = 0.25 USDC, since the loan lasts for 3months.

qToken​

Each Market has an associated qToken, which is minted to a user when they lend to the Market. qTokens represent the full principal plus interest amount that the user may redeem when the Market matures. For example:

A user lends 100 USDC at all-in fixed rate of 10%, expiring on 31 March, 2022. When the transaction is executed, the system will mint 110 qUSDCMAR22 tokens to the user. Upon the expiry of the contract on 31st March 4:00pm UTC, the 110 qUSDCMAR22 tokens will be redeemable for the underlying 110 USDC tokens at a 1:1 rate.

The advantage of qTokens is that it allows for greater capital allocation efficiency. While the user can simply hold onto them, the qTokens themselves hold value and can potentially be traded in secondary markets, staked in yield farms, used as collateral itself in other protocols, etc.

Note that a user may not have an outstanding debt and hold qTokens at the same time. If a user holding qTokens borrows in the same Market, the balance of the loan will be deducted from the qTokens. If qTokens are transferred to a user with an outstanding loan, the balance of the loan will be deducted first and the user will only receive qTokens that are in excess of their current borrows.

Quote​

Quotes are Qonstant's version of limit orders to either lend or borrow a particular token for a user-specified size, APR, and maturity date. You can think of Quotes as an analogue to limit orders in an orderbook. Users can either publish Quotes into the platform and wait for others to execute against it, or they can browse the list of existing Quotes and pick the terms that suit their needs.

Repayment Redemption Ratio (RRR)​

Qonstant adopts a hybrid overcollateralized/undercollateralized loan system. Because a portion of borrowers are undercollateralized, in catastrophic situations there is the possibility of borrower nonpayment. How will redemptions for lenders work in the case of bad debt? In traditional finance, this situation typically triggers a bank run, where lenders all try to redeem at the same time. The first few lucky lenders to redeem can receive 100% of funds, while the late redeemers receive 0%.

Qonstant implements a Repayment Redemption Ratio (RRR) system. The repayment ratio, which is the real-time ratio of total amount that borrowers have repaid divided by the total amount that lenders are owed, is displayed transparently by the protocol at all times. In the event of a borrower default, losses are socialized among lenders to ensure fairness to all users.

Example:

The USDCSEP22 market has just expired. Lenders have lent 1,000,000 USDC in total, while borrowers have only repaid 600,000 USDC. The Repayment Ratio is 60% (600,000 / 1,000,000), so all lenders can redeem only 60% of their qUSDCSEP22 qTokens. If a lender has 100 qUSDCSEP22 qTokens, they will only be able to redeem for 60 USDC. The remaining 40 qUSDCSEP22 qTokens will still remain in their wallet. In the event that borrowers are able to make payment at a later date, they will be able to redeem their remaining 40 qUSDCSEP22 tokens for the underlying USDC.

Risk-Adjusted Borrow Value​

The Risk-Adjusted Borrow Value is the Market Factor-adjusted aggregated value in USD (as determined by the current Chainlink oracle price) of all net borrows (i.e. borrows minus lends) across all markets, where each borrowed Market is adjusted by its corresponding Market Factor. Important to note is that for any particular Market, a net positive lend position does not reduce the aggregate Risk-Adjusted Borrow Value - that is, lending in a Market is not equivalent to depositing collateral. Lending in a Market cannot substitute as collateral, it can only net against a positive borrow position in that particular Market.

Note that the Risk-Adjusted Borrow Value is always greater than or equal to the Real Borrow Value.

Mathematically:

Risk-Adjusted Borrow Value = Borrow Value / Market Factor

Risk-Adjusted Collateral Value​

The Risk-Adjusted Collateral Value is the Collateral Factor-adjusted aggregated value in USD (as determined by the current Chainlink oracle price) of all collateral an account has deposited, where each collateral Asset is adjusted by its corresponding Collateral Factor. Note that the Risk-Adjusted Collateral Value is always less than or equal to the Real Collateral Value.

Mathematically:

Risk-Adjusted Collateral Value = Collateral Value * Collateral Factor

Slippage​

Because Qonstant implements an orderbook mechanism for loans, it is possible for users to experience slippage when placing quick orders if your order size is large enough. Your final all-in fixed interest rate is the weighted average of the Quotes you execute against.

Example: You execute a quick order to borrow 50,000 USDC, and the top three live Lend Quotes in orderbook are 25,000 USDC at 10% APR, 15,000 USDC at 8% APR, and 10,000 USDC at 5% APR, your final APR would be the weighted average of these Quotes, which is 8.4% APR.

Wrapped Native Tokens​

Wrapped native tokens are ERC20 tokens (e.g. USDC, WETH) that represents the native token of the network (e.g. ETH) at a 1:1 ratio, allowing the native token to interact with smart contracts and decentralized applications on the network that require ERC20 compliant tokens. This "wrapping" is accomplished by depositing native token into a smart contract, which in return mints an equivalent amount of wrapped native token. This process is reversible, meaning wrapped native tokens can be "unwrapped" back into native tokens. Under the hood, Qonstant uses the ERC20 standard for all lending and borrowing actions, including for native tokens, to provide a standardized interface.