Borrowing

Brief overview of taking out Zero-Liquidation Loans (ZLLs)

A ZLL is a crypto-collateralized loan in which a user pledges collateral (e.g., wETH) to receive a loan amount (e.g., USDC), as well as an option to reclaim their collateral prior to the expiry of the loan if they pay a pre-agreed repayment amount.

Because the loans on MYSO v1 are liquidation-less, users have the right, but not the obligation, to pay back their loans and recoup their collateral. Given that the price of the pledged collateral falls below the value of the loan, borrowers have no incentive to repay the loan terms and will simply retain the loan amount.

During the lifetime of a ZLL, the borrower’s pledged collateral is set aside for them (also not rehypothecated) and always remains available for the borrower to reclaim if they repay the loan. Even in case of a flash crash, the borrower’s collateral remains untouched during the loan lifetime. Only if the loan expires and the borrower didn’t repay until the expiry date will they forfeit their collateral, in which case the collateral will be made available to LPs.

When a borrower takes out a ZLL, the given pool assigns it a specific loanIdx and associates it with the corresponding borrower address, as well as a struct LoanInfo, in which it stores the following information:

• collateral - the amount of collateral a borrower effectively pledges and can reclaim (post potential transfer and pool fees)

• repayment - the amount a user needs to repay to reclaim the pledged collateral amount

• totalLpShares - the number of total pool shares by which LPs need to later split the associated repayment and collateral amounts when claiming

• expiry - the timestamp until repayment is possible and after which the borrower forfeits their collateral

• repaid - a flag indicating whether the loan was repaid or not