Metal X Lending is a powerful financial service that empowers users to leverage their cryptocurrency holdings for various purposes, such as generating passive income, obtaining liquidity without selling assets, or engaging in leveraged trading strategies.

This lending functionality, often referred to as "crypto lending" or "crypto borrowing," has gained significant popularity within the decentralized finance (DeFi) landscape. 

How Metal X Lending Works

Metal X Lending is a non-custodial decentralized lending platform built on the XPR Network, comprised of two key roles:

Lenders: These are the individuals or entities who contribute their tokens to a specific market, effectively lending them to the platform. Lenders can earn interest on the assets they supply to the lending pool.

Learn how to deposit assets in our guide here.

Borrowers: Borrowers, on the other hand, engage in the borrowing process, obtaining tokens from the lending market and, in return, paying interest to the depositors for the borrowed assets. To borrow funds, they must provide collateral in the form of cryptocurrency assets. Borrowers can use these loans for various purposes, such as trading, covering expenses, or taking advantage of investment opportunities.

Learn how to borrow assets in our guide here.

In this symbiotic ecosystem, lenders act as the providers of liquidity, while borrowers leverage this liquidity to meet their specific financial needs. Metal X Lending on the XPR Network facilitates this dynamic relationship, creating opportunities for users to both earn interest and access essential resources.

Over-Collateralized Lending Market

Collateral serves as the backbone of Metal X Lending, underpinning the security and reliability of the platform. Borrowers are obligated to deposit cryptocurrency assets of a higher value than the loan amount they seek to acquire. 

This commitment to over-collateralization acts as a protective shield, shielding lenders from potential losses in the case of borrower defaults. It ensures the integrity and stability of the lending ecosystem, fostering trust among all participants.

Assessing a borrower's default risk in decentralized lending platforms like Metal X is challenging since the identities of borrowing parties remain anonymous. To mitigate this risk, a strict over-collateralization requirement is enforced.

Within each borrowing market, a predefined Collateral Factor is established, representing the maximum borrowing limit relative to the deposited collateral value (typical values hover around 70%). In practice, this means that to borrow $B, a borrower must secure the loan with $C in collateral, ensuring the following condition:

$B <= $C x Collateral Factor

Notably, the specific collateral factor varies depending on market volatility. In general, more volatile markets warrant lower collateral factors, while more stable markets accommodate higher collateral factors. This approach adds an extra layer of protection for both lenders and the overall stability of the lending platform.

Borrow Interest Rates

Borrowing rates within Metal X Lending are intricately tied to the utilization rate of each market. This utilization rate represents the ratio of currently borrowed assets to the total assets available for lending. 

As a peer-to-peer protocol, every borrowed token must have initially been supplied by a lender. This dynamic can lead to scenarios where all tokens are currently in use for borrowing, temporarily limiting lenders' ability to withdraw their supplied assets. To address this, markets maintain an optimal utilization rate, often set at around 80%.

To encourage markets to approach this ideal utilization rate, borrowing rates are adjusted accordingly. Rates are kept low when below the target utilization rate, incentivizing borrowers to take out loans and offering attractive returns to lenders. 

Conversely, if the current utilization rate exceeds the target, borrowing rates sharply rise. This discourages new loan applications (or encourages loan repayments), ensuring there is consistently sufficient liquidity for lenders to withdraw their tokens.

The interest model follows a structure comprising two linear functions merged at the optimal utilization rate. The slopes, optimal utilization rate, and base rate parameters are customizable for each market.

Within the Metal X Lending ecosystem, Variable Loans are offered. These loans are characterized by borrowing rates that fluctuate based on the current utilization rate, ensuring dynamic and responsive borrowing costs. It's worth noting that borrowers within the same market will pay identical borrowing rates across all their loans.

You can find the Variable Borrow Interest Rate Parameters per asset here.

Earning an APY through Lending and Borrowing

Lenders, and in some instances even borrowers, have the opportunity to accrue an Annual Percentage Yield (APY).

To access the Annual Percentage Yield (APY) for any asset, simply navigate to the markets page. Hovering your mouse cursor (or using your finger on mobile devices) over the APY will reveal a comprehensive breakdown of the APY components. When engaging in borrowing, you will encounter either an Earn APY or Pay APY, both of which we will explain in detail below. Let's begin with Earn APY.

Earn APY on Metal X

In this scenario, you would incur a 0.14% interest cost in $XBTC, while simultaneously reaping the benefits of a 0.29% yield in $LOAN rewards. This combination results in a total Earn APY of 0.44%, essentially allowing you to earn while you borrow.

Pay APY on Metal X

In this example, you would be incurring an 14.23% interest rate on $XUSDC while simultaneously earning 1.49% in $LOAN rewards. The cumulative Pay APY would amount to 12.74%.

Loan Health on Metal X

Your Loan Health indicator gauges the risk associated with your outstanding loan balance and the collateral you've deposited. You can conveniently track your loans on the portfolio page and make repayments as needed to enhance your Loan Health, thus reducing the risk of liquidation. Once your Loan Health reaches 0%, you become vulnerable to liquidation, so it's crucial to manage it prudently.

You can tap on the info icon to see a more detailed overview of your loan health.

Repaying Interest

The interest you owe automatically compounds, causing your borrow balance to increase automatically. To learn more about how to manage and repay this interest, please refer to our comprehensive guide on interest repayment.

Liquidations on Metal X

When a borrower's borrowed assets exceed the maximum borrow threshold, which is calculated as the Collateral Factor multiplied by $C, the borrower is at risk of becoming illiquid and undergoing liquidation. In such a scenario, a liquidator steps in to settle the user's debt and, in return, seizes the user's collateral.

These liquidators play a vital role in maintaining the system's health and are motivated by receiving a discount on the seized collateral. In essence, they gain more collateral than th

e debt they repay on behalf of the borrower. You can find detailed information on liquidation procedures in the developer documentation.

The Collateral Factor also acts as a protective buffer for liquidations, ensuring that a borrower can regain liquidity after a liquidation event. If the Collateral Factor were set at 100%, a borrower would face complete liquidation, losing all their collateral as soon as their assets drop below the borrow threshold.

Currently, liquidators receive a 10% bonus as a reward for their efforts, which is applied to the seized collateral.

Liquidation example

You deposit $1000 XPR and borrow $400 XPR.

Your total assets amount to $1400, with a $400 liability, resulting in a net value of $1000.

Let's assume your Loan Health falls slightly below 0%.

A liquidator intervenes and repays $40 XPR on your behalf.

The liquidator receives $44.4 XPR from your deposits.

Your assets are now worth $1355.6, with a $360 liability, bringing your net value to $996.

As a result, your Loan Health is back above 0%.

Elevate Your Crypto Journey with Metal X Lending

Embark on a transformative financial experience with Metal X Lending. Whether you're earning, borrowing, or managing risks, our platform opens doors to a dynamic world of possibilities. Join us in reshaping the future of decentralized finance, where your assets work for you. Explore Metal X Lending today and empower your crypto journey like never before.

Metal X Swap

Join us on a journey in the next Learn installment, where swappers unlock the power of liquidity pools, yield farming, and seamless asset swaps. Discover the features, advantages, and innovative opportunities that Metal X Swap brings to the decentralized financial frontier.