Lending on Clearpool: Here’s What You Need to Know
With the mainnet now LIVE, we’ve created this FAQ to explain all the details of being a lender on Clearpool.
Who am I lending to on Clearpool?
All borrowers on Clearpool are institutions. Borrowers have to pass a stringent KYC/AML process to verify their legitimacy before they can open a pool. You can learn more about each borrower by clicking on their pool on the “Earn” page on the Clearpool app once live.
What are the anticipated interest rates?
The anticipated total APR for early lenders are expected to range between 10–20%, this will depend on the supply and demand of pool liquidity and the resulting utilization ratio of the borrower. The higher the utilization ratio, the higher the interest rate, and vice versa. This mechanism encourages a state of equilibrium for each pool in terms of size and interest rate. It suggests that a lower utilization ratio will result in lower interest rates leading to lenders moving liquidity to pools with more attractive interest rates and vice versa.
What assets do I get paid interest in?
Lenders get paid in USDC and CPOOL tokens
How do I receive my USDC interest payment?
Lenders accrue interest per Ethereum block. The amount of interest is automatically calculated and represented by the value of your cpTokens.
What are cpTokens?
cpTokens are LP tokens received by liquidity providers when liquidity is supplied to a borrower's pool. cpTokens are ERC-20 tokens, they represent the amount of liquidity supplied to a pool and accrue the interest rate for the pool.
cpTokens have three main characteristics:
1. They represent the amount of liquidity that has been supplied to a specific pool
2. They accrue the interest rate for that pool on every block
3. They represent the risk profile of the borrower pool
Each pool has unique cpTokens which start off with an exchange rate of 1 cpToken = 1 USD. But the exchange rate increases as interest is accrued within the pool. cpTokens will also be used in Farming to earn extra rewards.
How do I get paid interest rewards in CPOOL?
CPOOL rewards are allocated per block per pool. A certain amount of CPOOL will be distributed and shared per block among the liquidity providers, proportionate to their share of liquidity in the pool; this amount will depend on the pool size and token price of CPOOL. Rewards can be claimed at any time via the Claim CPOOL button on the “earn” page.
Where can I find a copy of the Interest Rate Model? You can find more details about the interest rate model here.
Which assets can be lent on Clearpool?
At launch, only USDC on Ethereum will be enabled. Additional assets may be considered based on demand and can be added via governance in the future.
Do I have to provide any KYC documents as a lender? No, as a lender there are no requirements. Lending to a borrower pool is permissionless and requires only a web3 connection.
What is the risk assessment process?
The credit risk score displayed on the Clearpool app is calculated by X-Margin, the specifics of the calculation can be found here.
Which wallets does Clearpool support?
Clearpool currently supports MetaMask and Wallet Connect.
What happens if a borrower closes a pool while my liquidity is still inside?
Pools can be closed at any time through the borrower making full repayment (borrowed amount + interest). However, lenders can still withdraw liquidity from a closed pool, the pool will still appear in the “My Positions” section of the “Earn” page when the corresponding lender wallet is connected.
What does the insurance pool refer to?
Insurance is a safety measure designed to offer more protection to lenders in the event of a default. Each borrower pool has an insurance account. On every block, a governance approved percentage of the pool’s interest is diverted to the insurance account. Initially, this amount will be set by the Clearpool Core Team but this can be modified via governance in the future.
In the event of a default, insurance can be claimed by the pool’s cpToken holders (lenders), following an auction process, which is designed to maximize the total claimable amount for lenders.
What happens to the insurance amount if the pool is successfully closed?
Insurance is returned to the borrower in the event that a pool is successfully closed.
What happens to the insurance amount if the pool defaults?
The insurance amount acts as the minimum bid amount for the auction process. The insurance is eventually split among the lenders of a defaulted pool in accordance with the percentage of their contribution to the pool.
How liquid is the pool for lenders?
Lenders can withdraw up to 99% of the total pool size at any given moment. However, borrowers can only withdraw up to 95% of the total pool size. Lenders and borrowers can withdraw at any time, up to the above-mentioned percentages respectively, given there is enough liquidity in the pool. There are no lock-in or cool-down periods.
Is there a limit to pool sizes?
Currently, there is no limit to pool sizes, however, borrowers can use the utilization curve in order to optimize the total pool size. Lenders will be able to see the risk score and borrowing capacity of the institutions that they lend to. The borrowing capacity is a metric given to us by X-Margin based on their calculations.
For borrower pools, what does the red “warning” label mean?
The red warning label means that a pool is in provisional default. When a liquidity pool hits 99% utilization, a provisional default is triggered. In the event of a provisional default, the borrower will be given a grace period of 5 days to return the utilization ratio below 95%. The provisional default rate and grace period can be modified via governance in the future.
How long is the grace period?
The current grace period has been set to 5 days. However, this grace period can be modified via governance in the future.
What is a default?
If a pool remains above 95% utilization for the entire grace period, a default is triggered. In the event of a default, an auction will ensue allowing participants to bid for the pool’s cpTokens (total debt of the pool).
How do cpTokens assist in managing risk?
cpTokens are the building blocks for a broader system of tokenized credit and risk management. New features and products will be released which will give lenders (cpToken holders) more sophisticated optionality in terms of managing and hedging risks. They will also be traded on a secondary market in the near future.
Does interest keep accruing, over the 5 day period, when in provisional default?
Yes, Interest accrues during the 5 day grace period, it only stops in case of actual default.
What is the starting bid amount for the auction?
The minimum bid amount is equal to the amount of the pool’s corresponding insurance pool + 1 USD.
Who can participate in the auction process?
Only whitelisted users can participate in auctions.
How can I get whitelisted to participate in the auction process?
Whitelisting is achieved by providing KYC information and by declaring the UBO of the bid. The pool borrower is not permitted to participate in the auction.
How long is the auction process?
The auction process will take a maximum of 10 days. Currently, the auction starting bid must be placed within 3 days of defaulting. After which, the auction lasts for 7 days.
What happens if the auction is not started within the initial 3 days?
If the auction process is not started within 3 days of defaulting, the insurance pool will be made available for the lenders to claim instead.
What happens to my funds after a default?
The pool’s debt will be available for auction. The winning bid amount will be split among the lenders in proportion to the percentage of liquidity that was provided to the pool.
Want to see a demo of how easy it is to lend?
Check out our latest webinar recording below where we showed a demo of lending stablecoins to one of our borrowers!
Happy lending, Poolsiders! 🏊