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Lend

Lending at fixed rates using the Tenor protocol can be done by either placing a market order (swapping instantly) or by setting a limit order. When lending the protocol swaps the loan asset (e.g., USDC) for Fixed Tokens(e.g., Fixed USDC Tokens). The exchange rate at which the swap occurs within the protocol will dictate the interest rate at which the user lends. Lending on the Tenor protocol has the following benefits:

  • Improved Matching Efficiency: The Tenor protocol improves the matching efficiency between lenders and borrowers compared to the structural interest rate spread inherent to onchain variable rate money markets.
  • Unmatched Funds Earn the Variable Rate: Unmatched lenders automatically earn the reference Morpho money market rate while idle, maximizing the protocol's capital efficiency.
  • Fixed Rates: Once matched, users benefit from the certainty of a known rate over a set duration. This prevents lenders from unwinding their positions if market rates decline.
  • Passive Lending: Lenders can passively auto-roll their positions into longer-dated maturities using the protocol's liquidity aggregation mechanism if they desire.
  • Flexible UX: The lending experience is passive by default, but users can take a more active approach by quoting rates across specific maturities.

Market Order​

Example​

Consider a user who wants to lend 100 USDC using a market order in a 1 year USDC fixed rate pool with the following outstanding liquidity distribution:

The user's 100 USDC are swapped to the highest tick with Fixed Tokens (8% in the example) minus 1% (the swap fee). As a result, the user’s 100 USDC are swapped for 107 Fixed Tokens, and the protocol then sends these tokens to the user’s wallet. The illustration below displays the state of the Fixed Rate Pool after the user swapped their Loan Tokens for Fixed Tokens.

At maturity, if the user did not enable the auto-roll feature, their 107 Fixed Tokens convert to 107 USDC and start earning the reference Morpho money market interest rate. If the auto-roll feature is enabled the 107 USDC are either lent in a new pool if a borrower is willing to borrow at a rate higher than the user specified minimum or start earning the reference Morpho market variable rate.

Mechanism​

In order to lend (swap) the following happens. The tokens that are lent (e.g., USDC) are deposited in the reference Morpho money market, in that process, users receive Loan Tokens in exchange. The Loan Tokens are then swapped for Fixed Tokens in the Tenor Fixed Rate Pool of the maturity specified by the user. By swapping through the pool's interest rate AMM the user swaps through one or multiple interest rate ticks against limit orders. The weighted average rate at which the user swaps his Loan Tokens for Fixed Tokens will determine his interest rate.

At the end of the swap the protocol sends the Fixed tokens to the user’s wallet. At maturity, the user will be able to redeem the Fixed Tokens 1:1 for the loan's currency (e.g., USDC). If the Fixed Tokens are not redeemed, they simply start earning the reference Morpho market variable rate.

Market Order Fees​

When lending by placing a market order, lenders pay a fee for acting as liquidity takers from the pools. The fee corresponds to the the annualized rate of an interest tick (e.g., 1% annualized if the tick size is 1%), and is subtracted from the interest rate at which they lend. For example, if the pool's market rate is 8% and an the pool's interest tick is 1%, lenders using a market order will lend at 7%.

Limit Order​

Alternatively, users can set limit orders in order to lend. As when placing a market order, the tokens that are lent are deposited in the reference Morpho money market and users receive Loan Tokens in exchange. While the limit order is pending, users receive the variable interest generated by the reference Morpho money market.

The execution of limit orders is conditional to a borrower swapping in the tick where the limit order is placed. Users can cancel in part or in full their limit orders at any time before maturity.

Limit Order Fees​

Users setting limit orders to lend do not pay any fees. Limit order users can even receive fees paid by swappers effectively improving their net lending rate, depending on the fee charged by the market curator.

Closing a Position​

Lenders can exit in part or in full a position before maturity if the pool is sufficiently liquid. To exit their position, they must sell the Fixed Tokens they own in exchange for Loan Tokens. If the pool is illiquid, a fixed rate lender can set a limit order to sell his Fixed Tokens at a rate he expects another lender to be willing to purchase his position.

At Maturity​

When Fixed Tokens reach maturity, users have three options:

  • Do nothing. Their position will by default start earning the variable rate of the Morpho reference market.
  • Redeem their Fixed Tokens for the underlying currency.
  • Roll forward their position to a longer dated maturity. The protocol also implements a mechanism to automatically roll their lending position at maturity.

Using Fixed Tokens as Collateral​

The Fixed Tokens received from lending fixed can be used as collateral to borrow from longer dated pools using the Tenor protocol. This allows users to lend at fixed rates in one maturity while simultaneously borrowing at fixed rate in a longer dated maturity.