Margin Pool
Learn how Margin Pool component is specified, and why it's integral part of the margin system on Gamma Options
Overview
The Margin Pool component in Gamma Options facilitates the borrowing and lending operations required to support margin trading. The primary objective of this component is to offer a secure and dynamic environment where liquidity can be pooled from lenders and utilized by traders and LPs.
Stakeholders
Lenders
Lenders supply assets to Margin pool to provide liquidity for margin trading. In return, they earn through accrued interest on their deposits. Given the platform's risk-managed approach and rigorous structural design, lending in Gamma Options offers an attractive low-risk avenue for asset growth.
Traders and LPs
Traders and liquidity providers (LPs) actively borrow funds from the Margin Pool to leverage their trading positions. In return for accessing this liquidity, they pay an interest rate, which directly benefits the lenders. This structure ensures that lenders are compensated for providing their assets, fostering a symbiotic relationship between all participants in the Gamma Options ecosystem.
Interest Rates
Rate Determination
The interest rate within Gamma Options is dynamic, adjusting to the ever-changing market conditions. This ensures fairness and transparency in its financial ecosystem. Notably, Gamma Options stands apart by not extracting any cut from the interest, ensuring maximum returns for the lenders.
Within our system, we distinguish between two interest rates:
Lend rate
Borrow rate
Before delving deeper, it's essential to clarify three core terms. First, we have the liquidity in the margin pool, which represents the total funds available. Next, we have the borrowed funds, indicating the total amount currently loaned out. From these, we derive the utilization rate, calculated as borrowed funds divided by liquidity.
The utilization rate becomes the linchpin for determining both the lend and borrow rates. For a clearer visual representation of how these rates interact with the utilization rate, please refer to the following chart.
The determination of both interest rates is intricately tied to the balance of liquidity and borrowing demands in the Margin Pool. As such, users might observe fluctuations in the rate, primarily influenced by the liquidity-to-borrow ratio of the pool (utilization rate).
Maximum Interest Rate
In the event of liquidity scarcity where lenders cannot immediately withdraw due to all funds being borrowed, the lenders will be compensated with the maximum interest rate until they can access their funds.
Please note that interest rates can go up to 400% as utilization rate approaches 100%. Such a high borrow rate incentivizes borrowers to repay their debt, while it also incentivizes lenders to deposit additional funds to the Margin pool.
Operations
Depositing
Lenders can deposit ETH and USDC into the Margin Pool, increasing the pool's liquidity. As funds are deposited, it leads to a reduction in interest rates, primarily due to the subsequent decrease in the utilization rate.
Withdrawal
Lenders can withdraw their deposits at any time, provided there are sufficient un-borrowed funds in the Margin Pool.
In the case that the required amount is not available due to it being borrowed, lenders earn the maximum interest rate until they can complete their withdrawal.
Borrowing
Traders and LPs can borrow funds from the Margin Pool for margin trading based on their margin requirements and the collateral provided.
Repaying
Borrowers are responsible for closing their positions and returning borrowed funds to the Margin Pool. The return must include the principal amount and the accumulated interest.
This technical specification provides a detailed overview of the Margin Pool Component's functionality and operations in the Gamma Options margin system. It is designed to be a guiding document for developers and stakeholders involved in the implementation and management of this component.
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