Borrow
This section gives an overview of the Borrow side of the product.
Introduction
The Borrow flow is the demand side of the product, aimed to users seeking to take leveraged positions in the DeFi market.
Why borrow with Concrete?
By taking out a loan through Concrete, borrowers obtain:
Economic Value
CT tokens as rewards (Concrete's native token)
Enhanced DeFi User Experience
Comparing and choosing the best and most capital efficient lender to borrow from
Managing different positions (across different lenders) in one place
This gives Concrete an edge to capture a considerable volume of the lending market volume and becoming the default choice for users seeking to take out loans across DeFi.
Let's explain how all of these advantages work with a set of examples.
Alice wants to take a loan on a DeFi platform, she wishes to use her ETH as collateral to take a loan in USDC.
Gas saving
This is one of the most important advantages of borrowing through Concrete for Alice.
If she went directly to AAVE, she would need to pay considerable gas fees (around $45), as Figure 1 shows below.
By using Concrete, Alice would only have to pay the gas fee for transferring the funds to Concrete's wallet (around $2) which is significantly less, compared to the costs of interacting directly with the lending platform contracts, as Figure 2 shows below.
Concrete is able to absorb the gas fees of the protocol's contracts interacting with the lending platform because, at scale, as part of it's business model, these costs can be offset from the revenue streams of the protocol.
Loan foreclosure and reduced liquidation penalties
This is a key feature on the Borrow side of Concrete Protocol.
By actively monitoring and managing Alice's loan, in a scenario where the value of the collateral starts dropping, Concrete can foreclose the position before it gets liquidated on the lending protocol, avoiding the enormous losses associated with entering into the liquidation process of AAVE.
To do this, Concrete closes the position on AAVE when it approaches the liquidation threshold by repaying the loan on the borrower's behalf taking, from the collateral, the amount equivalent to the repaid loan plus a small foreclosure fee. Then the remaining collateral is returned to the borrower.
Continuing with the example, we assume Alice took out a loan by providing 10 ETH as collateral, the price of ETH was $1,800 at that moment and the loan amount was 13,500 USDC. This puts her loan at an LTV level of 75%.
If she would have take out her loan directly on AAVE, the liquidation threshold would have been 80% and in case her LTV crossed that ratio it would have been liquidated and she would have been charged with a 5% liquidation penalty.
By taking out her loan through Concrete, her foreclosure threshold would have been 79.5% (yes, a little lower than AAVE) but her foreclosure fees would have been just 1.5%.
In numbers, we can see the benefit of using Concrete under a liquidation/foreclosure event where the ETH price drop got the LTV into the foreclosure threshold.
Liq / Foreclosure Price
$1,687
$1,698
-0.6%
Penalty / Fee
5%
1.5%
3.5%
Penalty Amount
$843.50
$254.07
$589.43*
Recouped Collateral
2.39 ETH
2.78 ETH
0.39 ETH*
*Amounts may vary due to collateral price slippage at the moment of foreclosure.
Learn more about foreclosures in the Loan Foreclosure section.
Protection against liquidation
The greater benefit of taking out a loan through Concrete comes with the possibility of also being protected from foreclosing under an even sharper collateral depreciation by adding a protection plan to the loan.
A Concrete loan protection plan provides a credit line that, for a 30 day period and in exchange of a small fee, becomes available to the borrower's position and is automatically deposited by the protocol directly in the lending platform, when the price of the collateral asset drops and the LTV hits a given threshold, thus increasing the collateral value to maintain the position's LTV in a healthy state.
This feature allows users to synthetically increase their foreclosure LTV threshold compared to the liquidation LTV threshold they obtain directly with the lending platform.
Continuing with the example, Alice might evaluate that she doesn't need to protect her loan at the moment se created it in Concrete, but she knows that she can add a protection plan to her loan at any given point in time while the loan is active.
The process for protecting the loan is pretty straight forward for Alice. She would choose between different protection plans where each plan offers a credit line amount (in stablecoins) and has an opening fee cost (~0.5% of the credit line) and a variable claim fee cost (~1.5% of the credit line) depending on the usage of the credit line.
Let's assume Alice chose, for her previous loan [10 ETH of collateral, 13,500 USDC loan, ETH at $1,698 foreclosure price], a plan that protects her with a $3,000 credit line and paid $15 as and opening fee at the moment of purchase.
This means that now, Alice's loan is protected during 30 days from being liquidated even if the price of ETH fell up to ~ $1,510 (a price drop of 16%). Or seen in another way, her implied synthetic foreclosure LTV would increase to ~90%
By the expiry of the protection, at the end of the 30 days period, in a scenario where the price of ETH decreased to the mentioned level at some point, Alice would have to pay the $3,000 of the credit line plus the claim fees that would have been already been deducted from the collateral for convenience.
If Alice would have not paid the credit line, by the time the policy expired, her loan would be foreclosed even if the LTV was healthy and the protocol would
To understand how protecting loans work more in depth read the Protecting a loan section.
CT tokens rewards
As part of the incentives for taking out loans through Concrete, the protocol rewards borrowers with CT token emissions.
When users complete actions like taking out a loan through Concrete, protecting a loan, paying credit lines or reaching certain milestones (TBD), they receive CT tokens as rewards for these actions.
Comparing lenders
Without Concrete, Alice would have to do her own research to find the most convenient lending terms for her loan.
This may seem like a trivial task, but it can be time consuming for Alice to go through each lending platform she may know of to find which ones support ETH/USDC and then compare APRs, LTVs, liquidation penalties and then take a decision on where to take out the loan.
As Concrete aggregates different lenders in one place, through a smooth UX, Alice would be able to quickly compare different options for her ETH/USDC loan and choose the one that offers the best APR and LTV terms.
All loan positions in one place
Now let's imagine that Alice, after taking out this loan in AAVE through Concrete, wants to borrow from other lenders.
Using Concrete's sleek UI, she will easily find other borrowing options, save on transaction costs and by just browsing to the "Loan Portfolio" section of the Concrete app, she will have all her active and past loans beautifully displayed, handy to be managed without needing to interact with different platforms separately.
In general, Concrete is able to offer this UX through the protocol's smart contracts that are directly integrated with the supported lending platforms.
Learn more about this in the managing a loan position section.
Receiving loan status notifications
As part of Concrete's protocol stack, we can find the Monitoring Services.
These services actively monitor changes in collateral prices and LTVs across all positions taken through Concrete and allow the protocol to perform the main actions required to avoid being liquidated in the lending platforms.
By leveraging these systems, Alice, besides seeing notifications in the Loan Portfolio section of the UI, can subscribe to alerts via Telegram to be aware of any status changes in any of her positions like collateral price drops, LTV approaching foreclosure level or protection expiry and take action.
If you would like to understand more about the Borrow flows, head to the Borrow functional section.
If you want to keep reading about the product flow for Earn, go to the next section of the Product Overview: Earn.
Last updated