Chedda
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Lending Pools

Chedda multi-asset lending pools support depositing a base token to provide liquidity, and whitelisted assets as collateral to borrow the base asset. The base currency is typically a stable coin or other relatively stable high market cap fungible token, and the collateral can be an ERC-20, ERC-721 or ERC-1155 token. Tokens have to be whitelisted to be used as collateral, and have to maintain a minimum threshold for collateral factor to be used in opening new loans.
For example, if the base token of a lending pool is DAI, lenders deposit DAI as collateral to earn interest, and borrowers can deposit whitelisted ERC-20, ERC-721 or ERC-1155 tokens as collateral to borrow DAI. Depositors can also collateralize their deposits to borrow on their value.
Loans on Chedda are always over-collateralized, with the loan to value ratio based on the collateral factor of the asset being used as collateral.
Higher grades have a high collateral factor, whereas more volatile, lower volume assets have a low collateral factor. A minimum collateral factor must be met for an asset to be used as collateral. This factor must also be maintained for any new loans to be opened with this collateral.
If a collateralized asset has a drop in collateral factor, no new loans can be opened with this asset, but existing loans remain open until they are repaid or liquidated.

Liquidity

Holders of the base token can provide liquidity by depositing their tokens to earn interest from loans. The base token is set at the time of pool creation and be any ERC-20 token.
The native token on a chain, such as ETH, AVAX or FTM can be used as base token by wrapping into an ERC-20 equivalent, such as WETH, WAVAX or WFTM.
MOZZ, the receipt token for adding liquidity to a multi-asset lending pool is minted when the base token is deposited.
MOZZ implements the ERC-4626 token standard, making it highly composable and forwards compatible with future DeFi protocols.

Borrowing

To borrow the base currency, users must deposit collateral in the form of any token that has been whitelisted as collateral. Each lending pool supports 1 or more ERC-20 token, and 0 or more ERC-721 or ERC-1155 tokens as collateral.

Liquidation

A position can be liquidated if the collateral value drops below the liquidation rate. When a position is liquidated, the collateral is placed on the open market and can be purchased for the loan value + interest + liquidation fee - CHEDDA incentives. Liquidations occur when the collateral value is above the liquidation rate, thus, in a reasonably liquid market, arbitrageurs can purchase the collateral and resell on the open market. If the collateral remains on the market, a 5% CHEDDA incentive is minted and added to the debt position. This occurs every epoch until either the collateral is purchased, or the CHEDDA incentive is at 95% of the collateral debt amount. Liquidators who claim this token can then acquire the initial collateral and the CHEDDA incentive. The protocol parameters are tweaked to ensure that the case of collateral not being purchased is an edge case, as for high volume tokens including NFTs, arbitrageurs can easily buy the collateral and sell on open markets at a profit.

Risks

Risks to lenders

  • Smart contract risk.
  • Bad collateral

Risks to borrowers

  • Interest rates: Chedda lending pools use variable interest rates which depend on the risk profile of the asset used as collateral. These rates are also affected by the available liquidity and utilization rate.It is therefore possible for borrowers to pay a relatively high interest rates through a combination of these factors.
  • Liquidation: Loans can be liquidated if the value of a collateral drops below the minimum collateral value.

Risks to the protocol

  • Issue: Drying up liquidity.
  • Mitigation
    • Greylisting tokens with drop in collateral ratio.
    • CHEDDA emission to cover portions of bad debt within the existing emission schedule.
    • There is a cap on the portion of liquidity each asset type can use. NFT collections have a lower cap which reduces the protocol's exposure to that asset.