Peer-To-Peer Lending
Peer-To-Peer Lending represents the most traditional form of loan available in the market. This format allows borrowers to freely set their collaterals and loan parameters, with only one lender participating in each loan. Paddle supports this process by allowing borrowers to select their lender in advance, catering specifically to the needs of the over-the-counter (OTC) loan market.
Collateral Treatment
Borrowers are not required to immediately deposit their collateral assets into the smart contract; instead, they simply need to authorize the transfer through MetaMask or another non-custodial wallet. The collateral assets are only transferred to the loan contract after a lender has successfully filled the loan.
If a borrower moves their assets out of their account before the loan is filled, the lender will be unable to complete the loan order, resulting in an error message indicating that the loan cannot be filled due to the absence of the required collateral. This process ensures secure and user-friendly collateral handling, minimizing upfront commitments until the loan terms are met by a lender.
Once the loan is repaid, the borrower can redeem their assets from the secure vault.
Loan Terms
Customizable Items
Collateral: Borrowers can choose to secure loans with single assets (such as ERC-20 or ERC-721 tokens) or a basket of assets.
Loan Currency: The type of token the borrower wishes to receive from the lender.
Loan Amount: The principal amount needed by the borrower.
Duration: The time period for which the capital is needed.
Interest & APR: The interest rate the borrower is willing to offer. The final interest payment is calculated based on the principal, the annual percentage rate (APR), and the actual duration of the loan.
Expiration: The duration for which the loan offer will remain valid in the market.
Pre-Set Items
Margin: A borrower fee, calculated as a percentage of the principal, is deducted when a loan is filled by a lender. For example, with a 1% margin on a loan of 100 BTC, the borrower receives 99 BTC. However, the interest is calculated on the full 100 BTC, and the borrower must repay the entire principal plus interest by the loan's due date.
Lender Fee: A lender fee calculated as a percentage of the interest is deducted upon repayment. For example, if 100 BTC interest on a 1000 BTC principal is due, lender will receive 90% of the interest (90 BTC), totaling 1090 BTC.
Repayment Method:
Lump Sum Payment: Currently, the only repayment method where the borrower pays back the entire principal and interest in one single payment.
On The Fly (Coming Soon): Allows the borrower to make payments at any time as long as the full amount is repaid before the due date.
Installment Plan (Coming Soon): Borrowers can split the repayment into several terms, similar to a mortgage. This method reduces default risk and facilitates higher-value collateral loans and institutional-grade lending within the BTC ecosystem.
Interest Calculation
Repayment Amount = Principle + Actual Loan Duration/365 x APR x Principle
Minimum Interest
To safeguard lender rights and deter the use of unrealistically high Annual Percentage Rates (APRs) to attract short-term funds, Paddle implements a Minimum Interest policy. This policy ensures that borrowers are subject to a minimum interest charge to discourage early prepayment. Specifically, borrowers must pay at least 25% of the interest calculated as if the loan were held until just before its due date. This effectively acts as a penalty for borrowers who repay early, particularly if they do so before 25% of the loan duration has elapsed.
Example:
Consider Alice, who borrows 100 BTC against her NFT for a term of 12 months at an APR of 100%. If Alice decides to repay the loan overnight or within the first three months, she is still required to pay a minimum interest of 25 BTC (calculated as 100 BTC * 100% APR * 25%).
Liquidation
If the borrower fails to repay the loan by the due date, the collaterals then become the property of the lender. The lender can claim these assets via our smart contract, ensuring a straightforward liquidation process.
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