How Kadia Lending works

Draft

Kadia Lending is in development, not audited and not on mainnet. A test version of the ERG market runs on Ergo testnet (the testnet record). The contracts aren’t final. Every figure marked as a launch parameter comes from the economic model (EM §3), is illustrative until it’s re-frozen before deployment, and can change.

Source: kadia-lending docs/specs/economic-model.md (EM) and docs/specs/lending-design.md (LD) at commit 2bb9256 (2bb92562799019fab6ac95b2576ad94197b6b14f).

Two isolated markets

Kadia Lending has two markets. Each has its own lenders, rates and losses, and nothing is shared between them (EM §1.1, §11).

	ERG market	LP market
You borrow	DexyUSD (USE)	DexyUSD (USE)
Against	ERG	Kadia DEX ERG/USE LP tokens
Collateral valued with	the ERG/USD oracle pool	the DEX pool’s fair reserves and the same oracle

USE is counted at $1. One USE of debt is one dollar of debt. If USE trades below $1, lenders, who hold USE, bear that (EM §2).

Lending

• You supply USE and get pool shares. Shares are tokens worth a slice of the pool, and you can hold or transfer them (EM §4.3, §8.1).
• Interest raises what each share is worth as it accrues, not when borrowers pay it (EM §4.1).
• Withdrawing pays your shares’ value in USE, limited only by the cash the pool holds. When the pool is fully lent, the borrow rate climbs until repayments or new supply bring cash back. You can also sell shares on Kadia DEX (EM §8.2).
• A reserve takes losses first. It’s part of the pool set aside from interest. Losses beyond it lower every lender’s share value. There’s no insurance and no backstop (EM §7).

Borrowing

• You open a loan by locking collateral and borrowing USE against it, up to the market’s maximum loan-to-value (EM §9.1).
• The rate is variable, shared by every borrower in the market, and moves with utilization: how much of the pool is lent out (EM §5). There’s no fixed rate and no maturity.
• Debt grows with the rate. Your loan records its share of the pool’s debt, so interest needs no action from you (EM §6).
• You can always repay, in full or in part, and so can anyone else on your behalf. At zero debt the loan closes, and all collateral goes back to you, never to whoever paid (EM §9.2).
• You can add collateral at any time. You can remove it only while the loan stays within the maximum loan-to-value (EM §9.3).
• A loan’s owner is always a plain single-key wallet address (LD §5, D43).

Fees

• The protocol takes a share of the interest borrowers pay (EM §1.1, D28). Part of it goes to the reserve, up to a cap, and the rest goes to a treasury as pool shares. Lenders pay nothing else.
• There’s no fee to supply, withdraw, borrow, repay, or add or remove collateral beyond the Ergo miner fee.

Next: Loan-to-value and liquidation.