Loan Mechanics

The Clynto Protocol facilitates decentralized peer-to-peer (P2P) lending and borrowing, enabling users to leverage their crypto and NFT assets for liquidity while offering investment opportunities for lenders. This section provides a detailed guide to the loan mechanics, covering the processes for borrowers and lenders, as well as the calculation of daily interest that drives the financial dynamics of the platform. Aimed at community members seeking to participate and investors evaluating profitability, this page ensures transparency and understanding of Clynto’s core operations.

1. Introduction to Loan Mechanics

Clynto’s loan system is built on smart contracts that automate lending and borrowing, eliminating intermediaries and ensuring efficiency. Borrowers use their assets as collateral to secure stablecoin loans, while lenders contribute funds to borrower pools and earn interest based on their investment. The interplay of these roles, governed by community-set parameters, creates a flexible and transparent financial ecosystem. Understanding these mechanics is key for users to maximize their engagement and for investors to assess the protocol’s economic model.

2. Borrower Process

Borrowers initiate loans by submitting collateral and defining their borrowing needs. This process involves:

2.1 Collateral Submission

• Description: Borrowers deposit crypto assets (e.g., ETH, SOL) or NFTs into the Collateral Management Contract.
• Valuation: Collateral value is assessed in real-time using decentralized oracles (e.g., Chainlink), ensuring accurate pricing in a specified currency (e.g., USD).
• Locking: The contract locks the collateral, making it unavailable for other uses until the loan is repaid or liquidated.

2.2 Loan Request

• Description: Borrowers specify the amount they wish to borrow in stablecoins (e.g., USDC), up to a maximum based on their collateral value.
• LTV Calculation: The Loan-to-Value (LTV) ratio is calculated as (Requested Amount / Collateral Value) * 100, determining the loan’s risk level.
• APR Tier Assignment: Based on the LTV, the loan is assigned to a governance-defined APR tier (e.g., 0-30% LTV = low risk, 31-60% LTV = mid risk).

2.3 Example

• Collateral: An NFT valued at $10,000.
• Requested Amount: $5,000.
• LTV: (5000 / 10000) * 100 = 50%.
• Tier: Mid-risk (31-60% LTV), assigned a 70% APR by governance.

3. Lender Process

Lenders fund borrower requests by contributing to pools, earning interest proportional to their investment and the loan’s risk level.

3.1 Investment Contribution

• Description: Lenders review open borrower pools and commit funds via an off-chain offer submission process (authenticated with JWT tokens).
• Whitelisting: Borrowers whitelist preferred offers based on amount and APR, finalizing contributions.
• Deployment: Once fully funded, the Loan Agreement Contract deploys the loan on-chain, disbursing funds to the borrower.

3.2 APR Calculation

• Formula: Lender APR = (Investment Amount / Requested Amount) * Max Tier Interest Rate.
• Purpose: Ensures APR scales with contribution size, rewarding larger investments within the tier’s maximum rate.
• Governance Role: The max tier rate (e.g., 70% for mid-risk) is set by community votes.

3.3 Earnings

• Description: Lenders earn daily interest based on their APR and investment, accruing until repayment or liquidation.
• Transparency: Real-time updates track earnings via the platform interface.

3.4 Example

• Loan: $5,000, 50% LTV, 70% pool APR.
• Lender X: Invests $2,000 → APR = (2000 / 5000) * 70 = 28%.
• Lender Y: Invests $1,500 → APR = (1500 / 5000) * 70 = 21%.
• Lender Z: Invests $1,500 → APR = 21%.

4. Daily Interest Calculation

Interest accrues daily, impacting both lender earnings and borrower obligations. This process is automated by the Loan Agreement Contract.

4.1 Methodology

• Daily Rate: APR / 365, converting the annual rate to a daily percentage.
• Daily Interest: Investment Amount * Daily Rate, calculating each lender’s daily earnings.
• Total Daily Interest: Sum of all lenders’ daily interest, added to the loan amount.
• Updated Loan Amount: Previous Loan Amount + Total Daily Interest, reflecting accruing interest.
• Recalculated LTV: (Updated Loan Amount / Collateral Value) * 100, monitoring risk over time.

4.2 Example Calculation

• Initial Loan Details:
  • Collateral Value: $10,000
  • Requested Amount: $5,000
  • Initial LTV: 50%
  • Pool APR: 70%
• Lender Contributions:
  • Lender X: $2,000, APR 28$1.534.
  • Lender Y: $1,500, APR 21$0.8625.
  • Lender Z: $1,500, APR 21$0.8625.
• Total Daily Interest: $1.534 +$0.8625 + $0.8625 =$3.259.
• Day 1:
  • Previous Loan Amount: $5,000
  • New Loan Amount: $5,000 +$3.259 = $5,003.26
  • New LTV: (5003.26 / 10000) * 100 ≈ 50.03%
• Day 2:
  • Previous Loan Amount: $5,003.26
  • New Loan Amount: $5,003.26 +$3.259 = $5,006.52
  • New LTV: (5006.52 / 10000) * 100 ≈ 50.07%

4.3 Key Insight: Effective APR

• Observation: The borrower’s effective APR (weighted average of lender APRs) is 23.8% [(2,000 * 28 + 1,500 * 21 + 1,500 * 21) / 5,000], lower than the 70% pool APR.
• Implication: Borrowers benefit from a cost lower than the maximum tier rate, while lenders earn based on their proportional contribution.

5. Loan Lifecycle

The loan progresses through distinct stages:

• Creation: Borrower submits collateral and request; lenders fund the pool.
• Funding: Once fully funded, the loan deploys, and funds are disbursed.
• Repayment: Borrowers repay principal plus interest over time or early, with no additional fees for early repayment.
• Liquidation: If LTV exceeds the threshold (e.g., 90%) or the term expires, collateral is liquidated to repay lenders.

6. Importance for Users

6.1 For Borrowers

• Access: Collateralized loans provide liquidity without selling assets.
• Flexibility: Governance-set APR tiers and LTV options allow tailored borrowing.
• Transparency: Clear interest calculations ensure predictable costs.

6.2 For Lenders

• Returns: Earn interest proportional to investment and risk level.
• Control: Off-chain offer process simplifies participation, with on-chain security for earnings.
• Risk Insight: LTV tracking informs investment decisions.

7. Conclusion

Clynto’s loan mechanics blend automation, transparency, and community governance to create a robust P2P lending and borrowing system. Borrowers gain flexible access to capital, while lenders enjoy predictable returns, all underpinned by a detailed daily interest calculation process. For community members, this guide clarifies participation, and for investors, it showcases the protocol’s financial clarity and user-centric design, reinforcing Clynto’s position in the DeFi landscape.