Fraxfinance Fraxlend: Borrowing Limits, Interest and Collateral Repayment

Pair Selection and Available Liquidity

Fraxlend pairs can differ in their asset token, collateral token, LTV ceiling and interest calculator, so their borrowing terms require separate evaluation. Each standard pair connects one borrowed ERC-20 asset with a different collateral token. The asset token names what lenders supply and borrowers owe. Collateral backs the borrowing position. Depositing it into one pair does not create a portfolio-wide borrowing balance across unrelated pairs. Available liquidity also belongs to the selected market, so unused collateral capacity can coexist with too little asset liquidity to fund a loan.

A lender supplies the asset token for fTokens. A borrower supplies collateral for borrowing capacity. Lenders redeem fTokens for asset tokens at the pair’s current share price. The redemption reverts if available asset liquidity is insufficient or an applicable withdrawal pause is active.

How Much Can a Fraxlend Position Borrow?

A collateralized position can borrow up to its pair’s LTV ceiling, subject to available liquidity and any applicable market-level borrowing limit. LTV equals outstanding debt value divided by deposited collateral value. Both values must use the same denomination and the pair’s applicable oracle exchange rate. For a percentage display, multiply that ratio by 100. Outstanding debt includes accrued interest, so the initial borrowed amount alone understates the liability after interest accrual.

For a pair enforcing a positive ceiling, let D denote debt value, C nonzero collateral value and m its decimal maximum LTV. The solvency condition is D / C ≤ m. For a solvent position at a fixed collateral valuation, additional debt capacity is m × C − D, before liquidity limits and contract rounding. Adding collateral increases C; repaying reduces D. A decline in collateral value or an increase in debt value moves the ratio upward.

Interest Costs and Rate Calculators

Fraxlend borrowing costs change with the debt balance, elapsed time and the market’s configured interest model, which responds to asset utilization. Utilization measures the share of supplied asset capital borrowers have drawn. More borrowing or lender withdrawals can push it upward. Repayment or additional lending can lower it. Capitalized interest adds to debt, allowing the LTV to rise even when the collateral exchange rate remains unchanged.

The Linear Rate model maps utilization onto a configured curve. The Time-Weighted Variable Rate moves rates over time when utilization leaves its target range. Variable Rate V2 combines an immediate curve response with changes to the curve during sustained utilization pressure. The configured model determines how quickly the debt’s rate reacts, so a quoted rate does not establish a fixed lifetime borrowing cost.

Transaction gas adds a separate cost. Collateral-swapping repayment also depends on the swap’s execution price, pool fees and minimum-output requirement.

Debt Shares and Full Repayment

Borrow shares measure an account’s portion of the pair’s aggregate debt, while the amount payable changes as the pair capitalizes interest. The pair tracks total debt amount separately from total debt shares. Their ratio gives the debt amount per share. Multiplying that ratio by an account’s shares gives its debt amount before conversion rounding. The lender’s fToken share price belongs to different accounting and must not replace this debt conversion.

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Direct repayment specifies debt shares and rounds the corresponding asset amount upward. Clearing every borrow share ends that debt balance, including capitalized interest.

When Can a Fraxlend Position Be Liquidated?

An LTV-limited position becomes eligible for liquidation when the liquidation check’s oracle-valued LTV exceeds its pair’s ceiling and the liquidation function remains enabled. A liquidator repays qualifying debt and receives collateral under the market’s liquidation rules. The transfer depends on the debt repaid, liquidation incentives, available collateral and any protocol fee. The payment reduces debt while removing collateral from the borrower’s position. Threshold eligibility does not establish a guaranteed execution time. Liquidators still need a transaction to execute against the position.

Additional collateral or repayment can restore solvency before a liquidation executes. Neither reverses a completed liquidation. The amount retained after liquidation depends on the debt repaid, collateral available and the pair’s fee configuration.

Oracle Bounds and Rejected Actions

Fraxlend’s dual-oracle implementation checks borrowing and liquidation with different exchange rates, which can produce different LTV readings for the same position. An oracle supplies the exchange rate the pair uses to value collateral against debt. Its solvency modifier uses the higher collateral-per-asset rate, which values collateral more conservatively. Liquidation calculations use the lower rate. Excessive deviation between the rates can block new borrowing and debt-bearing collateral removal. Direct asset repayment does not apply the same deviation test in this implementation, although repayment can have its own pause setting. A rejected borrowing call therefore does not establish that direct repayment is also blocked.

Collateral Swaps and Leveraged Positions

Supported Fraxlend contract functions swap between collateral and the borrowed asset through a whitelisted swapper and check solvency after execution. In supported repayment calls, deposited collateral sells for the borrowed asset and that output reduces debt. The call validates the path’s endpoints and applies its oracle-deviation check; it reverts if the swap produces less than the specified minimum asset output. Selling collateral reduces the collateral balance as well as debt, so the remaining LTV must pass. Fraxswap concerns token exchange; a swap alongside lending does not replace Fraxlend’s debt accounting or market limits.

A supported leveraged-position call borrows the asset, swaps it into more collateral and adds that collateral to the position. The added exposure retains borrowing interest and liquidation risk.

Pair Losses and Changing Loan Terms

Fraxlend lenders bear the selected pair’s credit losses when collateral recovery cannot cover its debt, so isolation does not eliminate market risk. Dynamic debt restructuring can write off uncovered debt against the pair’s aggregate lender claims. This reduces the assets backing its fTokens and can lower their redemption value. Interest accrual therefore does not guarantee that every lender claim only grows. The write-off reduces claims within the affected pair; it does not draw on unrelated pairs’ collateral.

Risk settings also depend on the deployed implementation. Deployment terms can fix parameters, while implementations with active administrative setters permit specified changes. A timelock-controlled maximum-LTV setter can alter the ceiling unless that setter has been revoked. Other supported setters cover oracle configuration, the rate calculator and liquidation fees. A fixed setting in one deployment does not establish permanence across every Fraxlend market.

Borrowing headroom changes if the enforceable ceiling, debt balance or oracle valuation changes. Any calculation using earlier settings must then use the updated terms.