Loans

Borrowing:

• Mechanism: Users can borrow S using EGGS as collateral.

• Loan Terms:

  • Collateral Requirement: Users can borrow up to 99% of their EGGS' value in S (99% Loan-to-Value Ratio).

  • Duration: Minimum 1 day, Maximum 365 days.

  • Interest: Interest rates are calculated on a linear scale with a base rate of 0.05%. Interest is collected up front, or upon initiation of a loan, from the borrowed amount.

  • Liquidation: If a loan defaults, then the EGGS collateral is burned. Since loans are over-collateralized, burning the collateral causes the ratio of S per EGGS to increase. EGGS collateral from liquidated positions are burned collectively, every day, at 00:00 UTC.

  

  Loan Asset Flow

Interest Rate Calculation and Example in Python:

def linear_interest_rate(days, slope, base_rate):
    """
    Calculate interest rate based on a linear model.
    
    :param days: Number of days for the loan term
    :param slope: Slope of the interest rate increase per day
    :param base_rate: Base interest rate (for 1 day or 0 days)
    :return: Interest rate in percentage
    """
    return slope * (days - 1) + base_rate  # Adjusting for 1-day base

# Example usage:
slope = 0.0548  # from our calculation above
base_rate = 0.05  # 0.05% for 1 day as an example
days = 10
interest_rate = linear_interest_rate(days, slope, base_rate)
print(f"The interest rate for a {days}-day loan is approximately {interest_rate:.2f}%")

Burning Example (Liquidation):

• Let's say there is 100 EGGS tokens in existence, and there is 100 S tokens backing them on the contract. That means the price of 1 EGGS is 1 S. A user can take a loan that is 99% of their EGGS' value. In this case, they use 100 EGGS to borrow 99 S. The user fails to repay their loan on time, leading the position to be liquidated. 99.7% of the collateral, or 99.7 EGGS, is burned and the remaining 0.3%, or 0.3 EGGS, is distributed to LP incentives and the team. Since the user's collateral was all of the EGGS tokens in existence, the only EGGS tokens that remain are the 0.3 EGGS that were distributed. The user failed to repay the loan of 99 S, so there is now 1 S in the contract's backing. We can calculate the new price of EGGS by doing 1 S / 0.3 EGGS = 3.333... S. The price of every EGGS token has increased!

  • For simplicity, this example does not account for interest, which further increase S backing per EGGS.

Instant Default (Redeem EGGS for S):

• Similar to how EGGS can be minted from the contract by depositing S, EGGS can also be burned for the underlying S:

  • The redemption process involves taking a single day loan against your EGGS and purposefully defaulting. This allows you to walk away with the underlying S while your EGGS are burned.

  • Instant defaults are subject to same 1% collateral premium and interest rates as other loans.

Flash Loans:

• Once the supply cap of 100,000,000,000 EGGS is reached, loan collateral can only be acquired by purchasing EGGS, e.g., on a DEX, rather than minting new tokens. In order to continue facilitating loans, leverage positions and arbitrage trading, a user friendly interface will enable flash loans seamlessly from the dApp. Flash loans incur a 1% fee.