Outline
High-level walkthrough of facilitating ZLLs between borrowers and LPs
ZLLs are efficiently facilitated between borrowers and LPs by way of permissionless, non-custodial liquidity pools. A simple outline of the process is as follows:
Creating pools: For a LP to provide liquidity and a borrower to take out a Zero-Liquidation Loan, a pool needs to be created first. Anyone is able to create an asset-pair-specific pool using a MYSO v1 template smart contract. At deployment, the pool creator must specify a set of parameters unique to that pool, including the intended asset pair, loan tenor, etc.
Adding liquidity: After a pool has been deployed, LPs can add liquidity and thereby acquire a share in the given pool.
Borrowing: Borrowers can choose the pool that best matches their preferred collateral/loan currency combination, loan tenor, etc. and borrow from it. Loans are then funded proportionally by all active LPs of the given pool, who thereby become entitled to a pro-rata share of the resulting loan proceeds.
Repaying/defaulting: Once a borrower has taken out a loan they can either (a) repay and reclaim their pledged collateral or (b) let the loan expire and retain the borrowed currency. In either case, the corresponding loan is then marked as settled and the associated proceeds are made available to LPs.
Claiming: After a loan has been settled, LPs can claim a pro-rata share of the corresponding proceeds. In case the loan was repaid, the proceeds are (a) a pro-rata share of the corresponding repayment amount, and otherwise (b) a pro-rata share of the unclaimed collateral amount.
Removing liquidity: LPs can remove liquidity that hasn’t (yet) been lent to borrowers.
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