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# Pools

Pools allow a borrower to raise capital from multiple lenders. Every pool exists as an independent entity characterized by the set of parameters used to initialize it. The parameters of a pool are set by the borrower, who is also the pool creator.
The customizability of pools serves multiple use cases -
1. 1.
A reputed market maker wishing to raise debt on their own terms without intermediaries
2. 2.
DAOs issuing bonds of different seniority to meet operational expenses
3. 3.
Risk assessment experts wishing to raise debt to issue loans themselves
And many more!

### Creating a pool

A pool is created by a user who wishes to borrow capital. Users need to be verified by one of the supported verifiers to be able to create pools - this is necessary for lenders to be able to perform due diligence before depositing assets into the pool.
The pool creator needs to set the following parameters:
1. 1.
Pool Size: Total borrow amount requested
2. 2.
Minimum Borrow Amount: Minimum amount that should be collected for the pool to go active. If this goal is not met, the pool is cancelled, and lenders can withdraw any capital they deposited in the pool
3. 3.
Borrow Asset: Asset being requested by the borrower
4. 4.
Collateral Asset: The asset borrower will put up as collateral
5. 5.
Collateral Ratio: The ideal collateral ratio that will be maintained by the borrower.
6. 6.
Interest Rate: The (simple) interest rate the borrower will be paying over the period of the loan.
7. 7.
Repayment Interval (
$RI$
): Duration between two interest instalment deadlines.
8. 8.
Number of Repayment Intervals (
$nRI$
): Number of instalments the borrower will pay over the course of the loan. The total loan duration will thus be
$RI \times nRI$
.
9. 9.
Pool Savings Strategy: Collateral supplied by the borrower can earn yield passively by having it deployed on of the supported savings strategy via Sublime's Savings Account. This parameter allows the pool creator to pick that strategy.
10. 10.
Collateral Amount: Amount (denominated in the collateral asset) that the borrower will be depositing.
11. 11.
Salt: Used to generate the address for the pool to be deployed for this loan request.
12. 12.
Verifier: Since it's possible for a user to have been verified by different verifiers, they're required to supply the verifier they wish to use (think of it as supplying one of your many possible identities) while creating this pool.
13. 13.
Lender Verifier: Similar to (12), pool creators can optionally specify a verifier for the lenders if they wish to restrict participation in some way.
Borrowers can have multiple pools active at the same time, allowing them to provide multiple options for the lenders to pick. Upon creation, pools enter a collection period during which lenders can start supplying liquidity. Refer Broken link to get a high-level overview of the different stages of pools.

### Supplying liquidity

Providing liquidity to a pool is fairly straightforward - in case a lender is satisfied with the terms offered by the borrower, they can deposit liquidity into the pool. We provide key points to make it easier for lenders to assess a borrower:
1. 1.
A timeline view of the borrower's repayment history: Lenders can look at the borrower's past performance on loans. They can view the amount the borrower has repaid over their lifetime, the defaults they've made, how they've responded to margin calls, etc.
2. 2.
Other lenders participating in the pool: Lenders can further examine the details of other lenders who've supplied liquidity in the pool. Having recognizable lenders supplying liquidity is more likely to attract other lenders who trust them.
3. 3.
Timeline of activity on other DeFi protocols: We query subgraphs of a few other DeFi protocols (such as Uniswap) for a user's wallet activity. This allows lenders to further gauge the borrower's borrowing capacity.
The above data points are aimed at helping lenders determine the borrower's repayment capacity and credibility. Furthermore, lenders can interact with the borrower off-chain and seek additional information.

#### Pool Tokens

Lenders receive ERC-20 pool tokens representing their position in a pool. Redemption of any repayments that the borrower makes is based on the number of pool tokens owned. This makes it possible for lenders to exit a pool early by selling their pool tokens to someone else, and also enables building structured products by combining positions in different pools together.

### Repayments

By the end of every instalment period, the borrower is expected to repay the interest that is due for the period. Repayments can be made any time, and over multiple transactions within the interval. Note that the interest accrued is the simple interest.
The principal amount is due in the very last interval.

### Grace Period

If the borrower fails to repay an instalment by the period deadline, their loan enters a grace period, during which repayment is still possible albeit with a penalty. If the borrower fails to repay the loan during the grace period, the borrower is considered to have defaulted on their loan. Read pool liquidations to learn more about liquidations and default.

### Extensions

Borrowers can request a one-time extension for a given instalment. An extension pushes the instalment deadline to the next deadline. This request has to be made before the loan enters the grace period, and borrowers can only be granted one extension for a given loan. Since an extension can be used only once for a given loan, borrowers must use this option carefully.
Once an extension request is made, lenders have until the end of the interval to vote on whether the extension should be granted or not. Every lender's voting power is proportional to the amount they lent. Lenders that abstain from voting are assumed to be against the extension. Votes in favour of the extension must pass the extension threshold for the extension to be passed.

### Collateral Requirements

Each lender is covered by collateral in proportion to their share of the loan. If the total collateral posted by the borrower at the time the loan goes active is
$C$
(denominated in
$collateralAsset$
), then the collateral backing each lender (
$c_{i}$
) when the loan goes active is defined as
\begin{align} c_{i} &= \frac{l_{i}}{L} \times C \\ \text{where } ~L &= \text{total loan amount denominated in borrowAsset} \\ l_{i} &= \text{debt owed to lender } i \text{ denominated in borrowAsset} \end{align}
Once a loan becomes active,
$l_i$
and
$L$
change over the course of the loan due to interest accrual, repayments by the borrower, and margin calls. In case the borrower chooses to have their collateral supplied to generate yield,
$C$
also increases due to interest accrual.
Individual
$c_{i}s$
can also begin to differ from each other due to margin calls which are exercised by lenders on an individual basis. We thus define the borrower's collateral ratio against individual lenders at any given time
$t$
as
\begin{align} \text{currentCollateralRatio}_{i} &= \frac{c_{i}}{l_{i}} \end{align}
$currentPoolCollateralRatio$
defined as
$\frac{\sum_{i}c_{i}}{\sum_{i}l_{i}}$
thus represents the pool's overall collateral ratio at a given point in time.

### Pool Liquidation

Liquidations can occur under two scenarios:‌
1. 1.
Missed instalment repayment - In case a borrower fails to repay an instalment before its period end, they enter a grace period. Repayments can still be made during the grace period, albeit with a penalty. Borrowers also have a one-time extension possibility that shifts the instalment deadline by a single instalment interval. Receiving an extension requires a vote by the lenders of the pool. Each lender's voting power is equal to the amount they lent, and total votes in favour of the extension must be greater than or equal to the threshold required for the extension to be passed. Lenders who do not vote are by default considered against the extension. In case the borrower fails to repay and doesn't win an extension, their collateral is liquidated. Capital recovered through liquidation of the collateral is distributed amongst lenders proportional to the liquidity they provided.
2. 2.
Margin calls - Individual lenders can exercise margin calls in case the borrower's collateral ratio falls below the pool's ideal collateral ratio set during the pool creation. Margin calls require a borrower to post extra collateral that is used to top up their collateral ratio against the lender that initiated the margin call. A margin call has to be answered within a limited time period (called the
$marginCallDuration$
), such that
$currentCollateralRatio_{i}$
=
$poolCollateralRatio$
. In case the borrower fails to recollateralize within the
$marginCallDuration$
period, collateral equal to
$c_{i}$
is liable for liquidation.
Both the scenarios for liquidation involve an element of trust - if lenders trust the borrower, they will vote in favour of the extension request, and lenders who trust the borrower might never exercise margin calls even if their collateral ratio drops significantly. At the same time, they provide ample avenues for lenders to limit their risk exposure.

### Lifecycle of a pool

A pool goes through different period depending on the state of the loan:
1. 1.
Collection Period: Upon creation, pools enter the collection period. During the collection period, lenders can deposit liquidity into the pool. During pool creation, the borrower is expected to deposit a portion of the collateral required. Furthermore, once a lender supplies liquidity into a pool, they can only withdraw their principal at the end of the loan period (unless the pool is cancelled or terminated).
2. 2.
Active Period: Upon completion of the collection period, the loan enters into the active status, marking the beginning of the loan period.
3. 3.
Loan Withdrawal Period: The borrower can start withdrawing their loan during the loan withdrawal period after depositing the remainder collateral. This period is subsumed within the Active period (refer Fig. 1 below).
4. 4.
Cancelled: A pool can be cancelled by the borrower during the collection period. The funds deposited by lenders are returned and collateral deposited by the borrower is returned back to them. The borrower is charged a penalty for cancelling the pool.
5. 5.
Terminated: In case it is discovered that a borrower is acting maliciously (for eg, the borrower is impersonating someone else), the pool can be terminated.
6. 6.
Defaulted: In case the borrower ends up missing a repayment, the pool enters the default state.
7. 7.
Closed: A pool is closed when the borrower successfully repays the loan.
Fig. 1: Lifecycle of loan
Furthermore, the pool enters different states within the active period depending on repayments and collateral ratios:
1. 1.
Grace Period: In case the borrower fails to repay an instalment on time, they enter the grace period.
2. 2.
Default: If the borrower fails to repay their instalment during the grace period and fails to get an extension, their loan enters the default state.
3. 3.
Margin Call: Should the borrower's collateral ratio fall below the minimum threshold, lenders can start executing margin calls. Please note that margin calls are executed by lenders on an individual basis.
Fig. 2: Different loan states. Note that dotted lines indicate states that are lender-specific