Lending for Farms: Explained


For farmers to be able to enjoy leverage on their position, they need to be able to borrow assets from somewhere.

JewelSwap has introduced specialized lending pools on it's lending page, which allows anyone to deposit assets into various lending pools.

When depositing assets into the lending pool, the user receives a token, which represents their lending position. As described in the tokenomics section, the user receives JI-Tokens (Jewel-Interest bearing Tokens).

This representative token constantly grows in value compared to the deposited token.

Withdrawing funds

A lender can take back their loaned assets whenever they want. This is possible only if there are tokens in the pool that no one has borrowed.

The utilization rate (displayed in percent) shows how much has been borrowed versus how much has been deposited into the lending pools. If the utilization is at 0%, nothing has been borrowed by farmers. If it is at 50%, half of all deposited tokens are being borrowed by farmers right now.

At the least, lenders get 30% of the rewards generated by farmers practicing leveraged farming. This means that farmers can borrow perpetually. Being able to withdraw from the lending pool is therefore dependent on the farmers closing their leveraged yield farms and returning the loan.

Pool Usage

The more the lending pool's resources are used, the greater the share of rewards lenders receive from farmers. There comes a time when a farmer's leveraged farm yields the same Annual Percentage Rate (APR) as a non-leveraged farm due to high usage. In extreme cases, with utilization rates over 99%, a farmer earns no rewards or APR at all (zero rewards/zero APR).

If farmers overuse a lending pool, their APR can fall to zero. This encourages them to end their leveraged farming, repay the borrowed funds, and farm without leverage. This in turn means funds become available again for lenders to withdraw. Meanwhile, lenders will receive a larger portion of the rewards, causing their APR to increase significantly.

Indeed, if utilization is very high, farmers have no benefit from leveraged farming. They would earn less than or, in extreme cases, nothing compared to non-leveraged farming. This is a heavy incentive to close leveraged farm positions and pay back lenders.

Fund usage safety

Farmers do not use borrowed funds themselves. JewelSwap keeps the Liquidity Pool (LP) Token. The farmer never has direct access to the borrowed funds, therefore, he cannot steal borrowed funds.

Risk of Bad Debt

While JewelSwap's lending system is designed to minimize risks through stringent liquidation mechanisms and risk management measures, it is important to acknowledge the potential for lenders to encounter bad debt. Bad debt may occur in rare circumstances where borrowers (in this case, the farmers) fail to meet their repayment obligations, resulting in a loss for lenders.

This can happen in extreme market conditions where assets rise or fall in value faster than the liquidation process can close the position, despite the decent liquidation buffer put in place by JewelSwap.

JewelSwap is committed to maintaining the integrity of its lending pools and actively works to mitigate risks. However, users should be aware that, despite our best efforts, lending always carries some inherent risks.

It is essential for lenders to stay informed about the state of the lending pools and to exercise caution when participating in the lending ecosystem. By doing so, you can make informed decisions and manage potential risks effectively.

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