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Liquidity Aggregation

The Tenor protocol implements a lending aggregation mechanism allowing lenders to set lend limit orders across pools of different maturities. These limit orders can be executed by borrowers on behalf of lenders, provided that the realized interest rate meets or exceeds the lender-specified minimum, and the maturity aligns with the lender's preferences. This enables lenders to opt into an auto-rolling lending mechanism while allowing their liquidity to be borrowed across multiple pools.

Mechanism​

The protocol's aggregation layer helps re-aggregate liquidity across pools, reduces fragmentation, and provides lenders with a passive auto-rolling lending mechanism, mitigating the typically active management required with fixed-rate lending. This aggregation of liquidity also gives borrowers greater flexibility to source liquidity in their preferred maturity.

Passive Lending​

Lenders can opt into an auto-rolling lending mechanism while allowing their liquidity to be borrowed across multiple pools. When granting this authorization, lenders set the following parameters on a per-market basis:

  • Minimum Lending Rate
  • Maximum Duration

The Minimum Lending Rate ensures that any third-party lending on the user's behalf does so at or above a specified rate. The Maximum Duration restricts lending to pools with maturities within a certain timeframe from the current timestamp.

Passive Rolling at Maturity​

Auctions​

When a lender's Fixed Token position matures within the protocol, a third party can re-lend to a longer-dated maturity on behalf of the lender. To mitigate the likelihood of lending below market rates (even if above the user's minimum rates), the protocol automatically initiates an auction at maturity. The auction starts at the market's maximum interest rate and gradually decreases towards the user's minimum lending rate. A third party can step in to lend at any point. This mechanism mitigates the risk from potential sandwich-style attacks when the lender's minimum rate is significantly below the market rate.

The protocol uses the previous position's maturity timestamp and the current timestamp to automatically run and calculate the rate at which a third party can lend on behalf of the user if within the auction period. This enables the auction to run automatically without requiring anyone to trigger an onchain transaction.