Securd Documentation
  • šŸ Overview
  • šŸ”¤Glossary
  • šŸ’”How does it work?
    • Objectives
    • Indirect Liquidity Providing
    • Leveraged Liquidity Providing
  • ā“FAQ AND TUTORIALS
    • General FAQ
    • Save FAQ
    • Borrow FAQ
    • User Tutorials
      • šŸ“„Tutorial - Save
      • šŸ“„Tutorial - Farm
      • šŸ“øTutorial - Video
  • šŸ”—QUICK LINKS
    • Website
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  • šŸ”¬Securd Models
    • Collateral Model
    • Diversification Model
    • Interest Rate Model
    • Compounding Model
    • Liquidation Model
    • Fee Model
    • LP Token Rating Model
      • 1ļøāƒ£Introduction
      • 2ļøāƒ£Market risk measure (MRM)
      • 3ļøāƒ£Liquidity risk measure (LRM)
      • 4ļøāƒ£Examples
      • 5ļøāƒ£Large scale analysis
      • 6ļøāƒ£Maximum leverage
      • 7ļøāƒ£Conclusion
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  1. Securd Models

Compounding Model

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Last updated 1 year ago

In order to provide maximum flexibility to both Depositors and Borrowers, interest payments are automatically integrated in Deposit and Borrow Balances and are compounded at every block.

To compute each Borrow Balance, we use a specific Denominated Currency called lTokenlTokenlToken. When a new Lending Pool is created for Token A, we create a lTokenAlToken^AlTokenA, whose price in Token A unit evolves as follows:

L0A=1andLt+1A=LtA(1+rtdt)L^A_0=1 \hspace{1cm} and \hspace{1cm} L^A_{t+1}=L^A_t (1+r_tdt)L0A​=1andLt+1A​=LtA​(1+rt​dt)

where dtd_tdt​ is the time period expressed in years. By updating this price, each Borrow Balance can be easily incremented by the interest accrued during the period.

For Depositors, we follow a similar approach by introducing a Deposit Token, or dTokendTokendToken, that represents their ownership in a specific Lending Pool. As opposed to lTokenlTokenlToken , these dTokensdTokensdTokens are minted and transferred to Depositors in exchange for their deposits.

In order to materialize the accruing interest over deposits, dTokenAdToken^AdTokenA will be convertible into an increasing amount of Token A. With RtR_tRt​being the Deposit rate, the price of dTokendTokendToken in Token A Unit, or DtAD^A_tDtA​, evolves as follows:

D0A=1andDt+dtA=DtA(1+Rtdt)D^A_0=1 \hspace{1cm} and \hspace{1cm} D^A_{t+dt}=D^A_t (1+R_tdt)D0A​=1andDt+dtA​=DtA​(1+Rt​dt)

Upon withdrawal, Depositors can redeem their dTokenAdToken^AdTokenA for Token A at the current price, reflecting their deposits plus the interest earned.

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