Borrowing

Users can deposit cBTC into Nectra as collateral to borrow nUSD through over-collateralized loans.

The maximum Loan-to-Value (LTV) of a position is 83.3% when opening a position. The liquidation LTV is 90.9%.

To close a position, users must repay the initial position debt amount in full, in addition to any accrued interest.

User-Defined Interest Rate

When opening a position, users must specify the annual interest rate they prefer to pay.

Interest rates are specified in increments of 10 bps. Positions that share the same interest rate in the system are put into a “bucket”. Positions in the bucket can have varying collateralization ratios (c-ratios), reflecting the individual position’s level of collateral-to-debt ratio. The c-ratio is an indication of the health of the position.

Once a position has been opened, users can adjust the position's interest rate based on their personal strategies or market conditions.

Interest accrues on a per-second basis on the debt amount within each position. The system charges the accumulated interest of an entire bucket (i.e., all the positions in the bucket) whenever an action is performed on the bucket. Accruing interest at a bucket level improves the efficiency of the system and ensures a more continuous collection of fees.

Opening Fee

When creating a new position, an "opening fee" of 0.2% is allocated as part of a position's debt, although it is not immediately charged. As interest accrues in the position, the fee is gradually paid off and is considered fully settled once the position's interest exceeds the fee amount. If a user reduces their interest rate, they will be charged the remaining fee amount, and a new opening fee will be applied to their outstanding debt. Increasing the interest rate of a position does not realize the fee, but it will cause the opening fee to be paid off faster due to the higher interest rate.

Repaying debt will trigger a pro-rata portion of the outstanding fee, calculated based on the amount being repaid. Increasing a position's debt will result in a 0.2% charge on the increase, which will be added to the outstanding fee amount.

This mechanism is designed to discourage users from temporarily increasing their interest rates to avoid redemptions, which target lower interest rate buckets.

ERC-721 Positions

Each position is represented as an ERC-721 non-fungible token, making positions easily transferable between addresses. Each position's collateral and debt are isolated, so transferring a position does not impact the recipient’s other open positions.

Delegable Permissions

Interest Rate Management

Position owners can delegate the management of their position's interest rate to another address. The permitted address can increase or decrease the position's interest rate, but cannot make any other changes to the position.

Position Management

Position owners can also delegate the authority to manage their position's collateral and debt amounts to a designated address, enabling proactive risk management against liquidation.

Note: Any collateral or debt withdrawn by the manager is transferred to the manager's address to enable the use of flash borrow to create leverage.