๐ฅLiquidity Suppliers
Liquidity Suppliers provide liquidity that is only borrowed by Integrated Borrow Strategies
Background
Liquidity Suppliers play a pivotal role within Integrated Liquidity Markets. They provide essential liquidity, powering Borrow Strategies in executing smart-contract-based DeFi strategies. These pools draw inspiration from Compound pools, the pioneering DeFi Money Markets. The utilization curve employed by Integrated Supply Pools adheres to DeFi standards, featuring a linear slope comprised of two piece-wise functions with a kink at the "optimal utilization" point. The supply pools also leverage ERC-4626 standards in issuing LP tokens for the pool.
Liquidity Provisions to Smart Contracts
The underlying mechanics distinguish Integrated Liquidity Suppliers from traditional DeFi lending pools. Only an authorized set of Integrated Borrowing Strategies, represented as code-based smart contracts, may borrow liquidity from this pool. Since these Borrowing Strategies are smart contract based, the universe of set actions are known and predetermined. This unique arrangement allows for full "trust" between the Liquidity Suppliers and Borrowing Strategies. The Liquidity Supplier smart contracts maintain control of the Borrowing Strategies' collateral AND the borrowed liquidity, resulting in an overcollateralized position from the perspective of the Liquidity Suppliers.
Enhanced Flexibility, Even at Full Utilization
The Liquidity Suppliers charge borrowing fees to the Borrowing Strategies based on the amount of liquidity utilized. The Liquidity Suppliers hold the the underlying Borrowing Strategy collateral, and fluctuation in collateral value may trigger automated rebalances for more efficient collateral management, detailed in the Rebalance section.
Because the Liquidity Suppliers maintain control over Borrowing Strategy assets, Liquidity Suppliers may withdraw and trigger a rebalance with minimal impact. This process incurs gas and may incur mint/redeem fees, depending on the underlying platforms used in the Borrowing Strategies. Overall, this mechanism enables liquidity flexibility, even at full supply utilization.
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