Frequently Asked Questions
Not familiar with lending protocols? Read our FAQ to understand all you need to know !
What is Enclabs ?
Enclabs is a decentralized lending protocol that allows users to lend and borrow assets (S, ETH, USDC, WBTC, Pendle PTs...). Enclabs is deployed on Sonic blockchain, ensuring transparency, security and efficiency in the lending and borrowing process.
Keys concepts
Lender: The person who supplies assets (e.g., USDC) to the protocol in exchange for earning interest over time.
Borrower: The person who borrows assets from the protocol and agrees to pay back the borrowed assets with interest.
Collateral: The borrower must usually provide collateral (a deposit of assets) to ensure the loan is repaid. If the borrower fails to repay, the protocol can liquidate the collateral.
Interest Rate: The fee or percentage the borrower must pay for using the borrowed assets. This rate can vary depending on demand and supply in the market.
Smart Contracts: Self-executing contracts with the terms of the agreement written directly into code. They automatically handle lending, borrowing, and repayments without intermediaries.
Step-by-Step Explanation of the Lending Process
1. Bob Lends Cryptocurrency
Bob wants to earn interest on his cryptocurrency holdings. He decides to lend his assets through the Enclabs lending protocol.
Bob deposits 1000 USDC into the lending pool provided by Enclabs.
Enclabs pools these assets from various users like Bob to create a reserve that borrowers can access.
By lending his USDC, Bob is entitled to earn interest based on how much demand there is for borrowing that particular asset.
2. Alice Borrows Cryptocurrency
Alice wants to borrow 500 USDC from Enclabs for a short-term project. To borrow assets, Alice needs to provide collateral (usually more than the amount she wants to borrow to mitigate risk for the lenders).
Alice decides to put up 750 USDC as collateral to borrow 500 USDC.
Enclabs checks the collateralization ratio, ensuring that Alice's collateral exceeds the amount she wants to borrow (e.g., a 150% collateralization ratio). In this case, her collateral is 150% of the amount borrowed.
3. Loan Agreement and Smart Contract
Alice and Bob don’t need to interact directly. Instead, the Enclabs's smart contract automatically creates a lending agreement once Alice provides her collateral.
The smart contract ensures that Alice will repay the loan with interest, and if Alice defaults, it will liquidate her collateral to cover the loan.
For example, if the interest rate is 5% per year, Alice must pay back 500 USDC plus 5% interest (i.e., 525 USDC).
4. Borrowing and Repayment
Alice now has access to the 500 USDC borrowed from the pool, and she can use it for her needs (e.g., investments or operations).
Over time, Alice accrues interest on her borrowed funds. The smart contract automatically tracks the interest, which is added to the repayment amount.
After some time (say, 1 month), Alice decides to repay her loan. The total amount owed, including interest, is now 505 USDC.
Alice repays the loan via Enclabs. Once the payment is made, the smart contract releases her collateral back to her.
5. Interest Earned by Bob
Enclabs also automatically calculates the interest on Bob's deposit (in this case, 5% annually).
Assuming Bob deposited 1000 USDC and the interest rate was 5% annually, Bob will earn 50 USDC as interest on his deposit over one year.
Bob can withdraw his 1000 USDC plus 50 USDC interest whenever he wants
Enclabs allows users to interact with one another without the need for intermediaries, making the process faster, cheaper, and more efficient.
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