Supply & Borrow
Last updated
English
Last updated
Supply & Borrow is a service that allows users to supply tokens to a liquidity pool to earn rewards or borrow other tokens based on the supplied tokens as collateral. Through this service, users can retain their liquidity without swapping assets while simultaneously borrowing the desired assets for transactions.
The Supply feature is a simple service that allows users to supply a single asset and earn rewards in return. The liquidity provided by the supplier can be borrowed by other users, and a portion of the borrow fees (Borrow APY) paid by these users is distributed to the supplier as supply rewards through a smart contract. Rewards are distributed in the same token as the supplied asset and are automatically resupplied to the pool, where they are recognized as collateral.
In addition to supply rewards, suppliers can also earn additional KSP rewards for participating in the liquidity pool. For example, a user who supplies KAIA can earn both KAIA (supply rewards) and KSP (additional rewards) based on the real-time supply APY. While KAIA is automatically resupplied to the pool and recognized as collateral, KSP additional rewards are not resupplied. Instead, users must manually claim them, and these rewards are not recognized as collateral.
Users can remove the assets they have supplied to the pool at any time. While removals may be temporarily delayed depending on the pool’s utilization rate, the reward model encourages the natural return of borrowed assets, ensuring that the entire supplied amount can be removed without any permanent restrictions.
If a user is borrowing assets, the minimum collateral ratio must be maintained to support the borrowing position, which may limit the amount that can be removed. If the collateral ratio relative to the borrowed asset amount decreases, the safety index may drop, increasing the risk of auto-return. Therefore, users must ensure that the collateral ratio remains sufficient both before and after removing assets.
Users can utilize the assets they have supplied as collateral to borrow desired assets through the liquidity utilization feature. The maximum amount that can be borrowed is calculated based on the total collateral value and the maximum loan-to-value (LTV) ratio assigned to each asset. The reason for considering the LTV ratio when borrowing assets is to ensure that the value of the collateral exceeds the value of the borrowed assets, thereby preventing auto-return during sudden market fluctuations.
As compensation for borrowing, users pay borrow fees (Borrow APY) to the liquidity pool. 80% of the accumulated fees are distributed as supply rewards to liquidity providers through smart contracts.
Returning (restoring) borrowed tokens is a critical aspect of managing a borrowing position. Users can restore the borrowed tokens with the same type of token or with the supply certificate, aToken. The aToken represents the user's share in the liquidity pool and accrues real-time supply rewards. Upon returning aTokens, users can remove the equivalent value of the original asset from the pool.
By restoring liquidity and increasing the collateral-to-borrowed asset ratio, users can reduce the risk of auto-return. This also allows users to reclaim a portion of their collateral.
