NEPRI Collateral for Lending Pool Sponsorship
Venture Risk Tokenized Bonds rely on interest generation on stablecoins. While the interest can be generated on any trusted DeFi and CeFi platform, NEPRI will launch a lending platform to internalize as much of the lending market it builds, as possible. This allows for additional value adding token utilities for the NEP token. Industry-approved assets will be default listed on the lending platform due to their safety and based on their established market liquidity, i.e. wBTC and ETH.
Beyond the large cap assets, NEP tokens will be usable as collateral to sponsor lending pools of any token. Any token could be added to the lending market through its smart contract. However, for these non-default tokens to have a lending market, NEP tokens must be staked as a collateral. They represent a form of protection in case the sponsored token faces an extreme price drop.
NEP tokens that are staked for governance and are receiving distribution rewards can also claim an additional source of revenue. This means stakers will earn governance rewards, and also be able to use their stake to create lending pools that generate additional rewards for them.

Terms of Sponsorship

Pool sponsorship is time-locked. The minimum time range for sponsoring a pool is 30 days. Beyond that, sponsors can make a lending pool last up to 2 years. 30 days is the minimum time period to facilitate any meaningful lending market. At the same time, a 2-year limit is placed just to ensure no one mistakenly locks their tokens for an incredible long period, like 100 years. The duration at which the lending pool is sponsored is displayed to market participants. Any borrowed assets must be returned before the final date of pool sponsorship.
Any loans taken by depositors must also be returned before the closing of the pool. If assets are not returned within the time limit, the participants of the sponsored pool will have their assets liquidated.

Borrow Limits

The amount of assets that depositors can borrow cannot be more than 35% of the dollar value of the NEP tokens used to sponsor the pool.
Example: If $100,000 worth of NEP tokens are used to sponsor a CRV (Curve) lending market, the maximum amount all CRV depositors can borrow is $35,000.
This means if someone deposited $10,000 worth of CRV in the pool, they will be able to borrow 3,500 worth of other assets (like USDT). However, if a person deposited $200,000 worth of CRV, they won’t be able to borrow more than $35,000 because that pool is sponsored with only $100,000 worth of NEP tokens. Total borrow limit for all depositors is only $35,000.

Deposit Limits

Continuing the example above:
The maximum limit of deposits in any pool is 3.5 times the dollar value of the NEP tokens. This means if CRV deposits reach $400,000, deposits will become locked. This is in order to prevent situations in which $1,000 worth of NEP tokens sponsors a market in which $1,000,000 worth of CRV becomes deposited.

Lenders’ Safety Assessment

Non-established tokens are too volatile due to low liquidity to provide safety for lenders. If CRV depositors borrow USDT, it is important that the USDT lenders are getting collateral worth more than the amount they have lent. To address this issue, only 35% of deposit amount can be borrowed. This means an instantaneous drop of more than 65% would be needed to put the USDT lenders at risk.
Even if CRV were to drop by 65% in a sudden collapse, USDT lenders won’t be at risk. Someone had to sponsor the CRV with 2.5x the size of the borrow limit of CRV depositors. This means even if CRV dropped by 100%, the money owed to USDT lenders is recovered by the pool sponsor. This ensures the system cannot be gamed. A person won’t be able to just mint tokens, manipulate their price, and then borrow USDT against useless tokens or coins. The pool’s borrowing capacity depends on the NEP tokens used to sponsor it.

Payments to Sponsors

Non-default contracts sponsored in NEP tokens will receive payments from the borrowers. The sponsor would additionally receive payments from depositors in case they borrow other assets (like USDT). Continuing the example of $100,000 of NEP tokens deposited to sponsor a CRV (Curve) pool. The market’s sponsor would be paid from the people who deposit CRV to borrow USDT, and also from the borrowers of CRV from the depositors. When CRV depositors would use their collateral to borrow a maximum for $35,000 of another coin, they’d pay a premium on top of the base interest rate, with the premium paid to the sponsor. Meanwhile, people who join the market to borrow CRV will have to pay an interest too. A portion of this interest will go to the sponsor.

Platform and Ecosystem Safety Assessment

The NEP tokenwill derive its value from a wide array of revenue sources and ecosystem benefits, the lending pool and therefore it faces no existential crisis from the failure of any particular lending pool. Still, only a maximum of 20% of circulating NEP tokens could be applied to pool sponsorships. This figure may be changed in the future. The opportunity to use the NEP token as a lending market sponsor offers benefits to more than just NEP token stakers. Coins that join the ecosystem can use their native tokens as collateral for borrowing or to earn interest and can do so by buying NEP tokens in order to collateralize and sponsor their own cryptocurrency.
Last modified 8mo ago