Auto-Renewal

Tenor offers users an auto-renewal smart contract to simplify the renewal process and minimize the likelihood of users getting liquidated at maturity.

When enabled, the contract enables any third party (e.g. lender) to renew a borrower’s position in a longer dated term, removing the need for manual repayment or monitoring. The contract also enables the renewal at a variable rate using an open term market.

If auto-rolling is disabled and the user fails to repay the position by maturity, collateral equivalent to the amount owed is liquidated to settle the debt.

Renewal Mechanism

At maturity, if auto-renewal is enabled, the position can be extended into a later-maturity fixed-rate market programmatically. The Tenor smart contract runs an auction before maturity enabling any third party to roll the user’s position in a longer dated term. The user can set different renewal policies. Policies run auctions to renew positions at the best available rate up to a user set maximum rate.

Fixed Term, Fixed-Rate Renewal

By default, positions renew into a later-maturity fixed-rate market based on the user’s renewal policy. To secure the best rate, Tenor contracts run an auction six hours before maturity.

Renewal Policies

Users can customize their fixed term renewal policy by specifying:

• The auction type they want to run
• The maximum renewal interest rate
• The maximum renewal term length

The graph below illustrates how fixed-term, fixed-rate renewal works in practice. In this example, a borrower holds a position with an initial interest rate of 5% and has set a maximum renewal rate of 7%. During the auction, the position is successfully renewed at a new fixed rate of 6%.

Open Term, Variable-Rate Renewal

If the fixed-rate renewal fails, due to lack of liquidity or because the rate in the new term exceeds the user’s set preference, the position can be renewed into a corresponding Morpho variable-rate open term market.

In this example, a borrower holds a position with an initial interest rate of 5% and has set a maximum renewal rate of 7%. During the auction, no lender was willing to renew the position below 7%, so it renewed at a variable rate of 7.5%.