WENWEN Protocol — Lending Service
Introduction
WENWEN Protocol is a stablecoin lending protocol on Starcoin that you can provide various crypto assets including interest-bearing tokens as collateral to borrow a USD pegged stablecoin — WEN.
Lending Service
There are two main types of users in the lending service, borrowers and liquidators. WENWEN Protocol allows users to borrow USD pegged stablecoin — WEN against Crypto-assets (basic assets and ibTKNs) used as collaterals. WEN is used in the same manner as any other cryptocurrency: It can be freely transferred to others, used as payments for other assets and services, be held as a hedge against market volatility, and more.
To borrow WEN, users need to deposit their collateral assets to open a position. A position is where a borrower takes out and maintains the loan. Positions are inherently non-custodial. Borrowers have complete control over their positions as long as the collateral value doesn’t fall to or below the liquidation price. The borrower can remove the collateral assets deposited or add more collateral in position at any time. However, borrowers need to keep the collateral value above the liquidation price to avoid liquidation.
All approved collateral assets can be leveraged to borrow WEN. Currently, users can use STC as collateral, and more collateral assets will be approved soon. Users can access the WENWEN Protocol and create a position through the WENWEN borrow page. (link)
Fees
The fees incurred in WENWEN Protocol’s lending service include: borrow fee, borrowing interest, and liquidation fee. The total debt a borrower is undertaking includes the WEN principal borrowed, borrow fee, and the continuously accruing interest fee.
- Borrow Fee
The borrow fee is the fee charged to borrowers for borrowing WEN. It is added to the borrower’s debt. Borrow fees will be collected by the protocol and later distributed to sSHARE holders.
Example:
If the borrow fee is 5% and Alice borrows 1000 WEN, the total debt would be 1005 WEN. Alice will still receive 1000 WEN, and 5 WEN will be distributed to sSHARE holders. When Alice chooses to repay her debt, she has to repay a total of 1005 WEN (Excluding accrued interest fee).
2. Interest Fee
The interest rate is the annualized borrowing interest of WEN, and it also acts as the risk parameter of the inherent risk in borrowing WEN against the collateral asset provided by the borrower. The interest rate for each collateral asset can be different due to the inherent risk of each asset.
Once the borrower opens a position, the interest fee will continuously accrue to the borrowed WEN balance of the borrower’s position. Interest fees generated by the protocol will be distributed to sSHARE holders.
Example:
If the interest rate is 1%, and Alice has total debt of 1005 WEN (Including borrow fee), and 12 months later, Alice will owe 10.05 WEN as interest fee.
If the borrower chooses to repay the debt partially, the principal and outstanding interest fee will be paid back proportionately. The remaining amount of debt will continue to accurate interest fee.
3. Liquidation Fee
The liquidation fee is the incentive fee given to the liquidators performing liquidation. From the borrower’s perspective, the liquidation fee is already included in the calculations when quoting a liquidation price for the respective collateral assets. When the borrower’s liquidation price is reached, the position will be liquidated. From the liquidator’s perspective, the liquidation fee is the discount a liquidator gets when buying collateral flagged for liquidation.
Stablecoin — WEN
WEN is WENWEN Protocol’s USD pegged stablecoin. Users can borrow WEN by depositing approved collateral assets. WENWEN Protocol always considers WEN to be worth 1 USD. WEN is soft pegged to the U.S dollar.
Stability Mechanism
Since WEN is USD pegged stablecoin, the stability mechanism relies on arbitrage. It is a simple and fast method to adjust the WEN price and keep it close to the peg.
Example:
- When the WEN price is below $1, a borrower can choose to purchase some WEN at this discount to repay part of the total amount of their debt. This will increase the demand for WEN and have an increasing price effect to bring WEN back to the peg.
- When the WEN price is above $1, users with approved collateral assets can choose to open a position by depositing their collateral and selling or using the borrowed WEN at a higher price. This will increase the supply of WEN and have a decreasing price effect to bring WEN back to the peg.
- When WEN price is trading differently on the markets, users might choose to purchase WEN at a lower price (below $1) and sell WEN for a higher price (above $1) on another market. This will close the price gap of WEN and bring the price back to the peg.
To learn more about WENWEN Protocol, follow our social media and join our community:
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