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The social graph for credit
Overview
Core Concepts
Verification
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Credit Lines
Savings Account
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Credit Lines
Credit lines allow borrowers to draw capital from lenders without any fixed end terms. Credit lines are ideal for those who've already identified a lender. Additionally, verification for borrowers isn't necessary, thus allowing anonymity on-chain.
Combining credit lines and pools allow for many interesting possibilities - for eg, a credit line lender that's comfortable verifying themselves can create a pool to borrow from other lenders at the exact same terms as the credit line - this allows their own upfront capital expenditure to be zero.
We envision credit lines creating a new web of trust for credit - enabling a new form of decentralized and crowdsourced risk assessment and capital disbursement.

Creating a credit line

Credit lines can be created either by the lender or the borrower and require a confirmation from the other party to be established. The credit line creator can set the following parameters:
  1. 1.
    Recipient: The address of the other party in the credit line (lender's address in case the borrower is the creator or vice versa).
  2. 2.
    Borrow Limit: Defines the maximum debt (principal + interest accrued) the borrower can owe to the lender. Once the limit is reached, the borrower cannot borrow anymore until part of the debt is repaid.
  3. 3.
    Interest Rate: The interest rate for borrowing.
  4. 4.
    Ideal Collateral Ratio: The ideal minimum collateral ratio that the borrower must maintain. Each time the borrower tries to draw new credit, they need.
  5. 5.
    Auto Liquidate: This parameter allows the credit line creator to decide how liquidations take place. If set as true, anyone can liquidate the borrower's collateral by repaying an equivalent amount of the borrowed asset. However, institutional lenders often provide borrowers with some extra time to add in extra collateral. Setting this parameter as false only allows the lender to liquidate the credit line, allowing them that flexibility.
Once a credit line request is made, it needs to be accepted by the other part for it to get activated.

Supplying liquidity

Once a credit line is established, supplying liquidity for it is fairly straightforward - liquidity in the lender's Savings Account is used to satisfy any borrowing requirements. It is expected that lenders proactively maintain sufficient liquidity to satisfy all the credit lines they may be a part of - reserve capital requirements are not enforced within the contracts.

Borrowing

Borrowing from a credit line is straightforward as well. The following conditions are checked each time the borrower tries to draw debt from the credit line:
  1. 1.
    The lender's savings account must have sufficient liquidity to fulfill the borrower's request
  2. 2.
    The borrower's new debt is below the Borrow Limit
  3. 3.
    The borrower's new hypothetical collateral ratio after the transfer is made must be greater than or equal to the liquidation threshold

Liquidation

Liquidations can occur in case the borrower's collateral ratio falls below the liquidation threshold. Who gets to liquidate a given credit line depends on the Auto Liquidate parameter:
  • If Auto Liquidate is set to true: Anyone can liquidate the credit line. The liquidator needs to transfer an amount equal to the value of the collateral (minus the liquidation reward) denominated in the borrowed asset.
  • If Auto Liquidate is set to false: Only the lender can liquidate the credit line. In this case, the lender simply take possession of the borrower's collateral.

Closing a credit line

Either party can choose to close the credit line at any time. The only condition is that the borrower's debt must be zero.
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Creating a credit line
Supplying liquidity
Borrowing
Liquidation
Closing a credit line