Borrow

Whitelisted Borrowers in Cap can borrow and repay the underlying Vault assets, provided they have secured sufficient collateral from an Underwriter.

Mechanics

Borrow

The borrow process flow is as follows:

1. Borrower calls the borrow function on the Lender contract

2. Underwriter interest is realized first to prevent charging for compounded interest

3. If eligible to borrow*, assets are lent out from the Vault to the Borrower

4. Debt tokens are minted to track the loan

Key Validations*:

• Borrower must have sufficient collateral and health factor

• Borrower must be whitelisted and not paused

• Asset being borrowed should not be paused

• Borrow amount must meet minimum requirements, and may not exceed maximum borrows

  • Minimum: set by Admin via the setMinBorrow function

  • Maximum: The smaller value of the Borrower's remaining borrow capacity, and the remaining available amount to be borrowed from the Vault

Repay

The repay process flow is as follows:

1. Borrower calls the repay function on the Lender contract

2. Underwriter interest is realized first to ensure all interest is accounted for

3. The repayment is processed in the following order:

   1. Unrealized underwriting premium (if any)

   2. Vault principal debt

   3. Vault interest

4. Debt tokens corresponding to the total amount repaid are burned

If the repayment is not in full, the system will maintain a minimum borrow amount for the Borrower.

Interest Distribution

The repaid assets are distributed back to the shareholders:

1. Vault Principal: Sent to Vault contract's reserves

2. Vault Interest: Sent to interestReceiver (set to Fee Auction). Any excess interest will go to the interest receiver

3. Underwriting Premium: Sent to Delegation contract for distribution to Underwriters

4. Unrealized Interest: Added to Borrower's debt balance for future repayment

Realizing Interest

Interest in Cap is accrued continuously but realized discretely:

• Accrued Interest: Calculated in real-time based on elapsed time and rates

• Realized Interest: Actually borrowed from vault and distributed to recipients

• Unrealized Interest: Accrued but not yet realized due to vault liquidity constraints

As can be seen, interest can be realized prior to repayment in Cap. Both stcUSD holders and Underwriters may permissionlessly realize interest by borrowing from the vault and distributing to interest receivers.

There are two functions to realize interest: realizeInterest and realizeRestakerInterest

RealizeInterest:

• Realizes vault interest (interest paid to the stcUSD holders)

• Interest is borrowed from the Vault and paid to the interest receiver

RealizeRestakerInterest:

• Realizes underwriting premium (premium paid to Underwriters)

• Interest is borrowed from the Vault and paid to the Delegation contract

For both functions, the process flow is as follows:

1. Determine available interest to realize

2. Increase reserve debt

3. Borrow interest amount from Vault

4. Transfer assets to recipient

For function signatures, parameters, and data structures, see the Lender Contract Reference.