Fees for Borrowers

Borrow Interest Rate

The main cost for borrowing is interest payments, which is a fee that accrues over time on outstanding debt that's paid to lenders, helping balance the demand and supply of both actors agnostically of market conditions.

Rates are specific for each collateral and will be set by governance depending on the collateral risk, ecosystem conditions and utilization it has.

There's a maximum interest rate (TBD) to ensure borrowers security.

Interest rates will be set at 50% during collateral sunsets to incentivize borrowers to exit their positions.

Interest payment calculation

$$\text{activeInterestIndex}_{c,n} = \text{activeInterestIndex}_{c,n-1} \times (1 + r \times t)$$

• The activeInterestIndex represents the Interest Rate Index for collateral type c at time n.

• r represents the per-second interest rate.

• t represents the time period since the last index update.

Extended Interest Cost Variability Over Time ⌛ ☝️ Interest Rate por Time (arbitrary units) 🟨 Normal Conditions 🔶Collateral Sunsets

Vault Debt Calculation

Each individual Den tracks the activeInterestIndex at the time of its last debt change. The current vault debt at any time is then calculated as:

$$\text{currentVaultDebt} = \frac{\text{vault.debt} \times \text{activeInterestIndex}}{\text{vault.activeInterestIndex}}$$

Borrowing fees

Borrowing fees are triggered once a Den issues new debt in the form of $NECT.

There is a minimum fee of 0% when the system is under Recovery Mode (Total Collateral Ratio (TCR) < 150%), but usual operation fees will be near a minimum of 0.5%.

This fee can increase up to 5% if the volume of borrowing is high for a sustained amount of time.

Borrowing fee calculation

The Borrowing fee rate is between 0.5% and 5% and is multiplied by the amount of liquidity drawn by the borrower. For example: If the borrowing fee is 0.5% and the borrower wishes to borrow 4,000 $NECT, they will be charged a borrowing fee of 20.00 $NECT. After adding the Liquidation Reserve fee and the borrowing fee, the total debt incurred will be 4,220 $NECT.

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Liquidation Reserve

This is a silent re-accounting fee with little to no effect on the user.

200$NECT is reserved by the protocol to cover gas costs incurred by the liquidator initiating the transaction, in the case the vault gets liquidated.

It is completely refundable and is returned when a vault is closed by paying off the debt or if there's a redemption against it.

It's considered a part of a Den's debt, and therefore, it's factored into the computation of a Den's collateral ratio and interest payment.

Overall, slightly increases the actual requirements for collateral.

Borrowing in Beraborrow V2:

In Beraborrow V2 borrowers will set their own interest rates on Beraborrow when they open a Den position. This provides borrowers with control over their own debt terms, allowing them to align the terms with their own risk tolerance and financial goals. Interest accrues as simple, non-compounding interest and is compounded when the position is changed.