Decentralized Money Market

The fundamentals of a Decentralized Money Market on Taiko

Lending in TradFi

In the TradFi system, for you to get a loan, you'd need to go to a bank with a sum of liquid cash and to pledge it as collateral. Obtaining a loan from a bank often involves a rigorous process of KYC, credit score assessment, collateral requirements, and often limited accessibility. Hana removes the centralised TradFi intermediaries in the above process and aims to provide a non-custodial, decentralized, and seamless lending and borrowing experience to all users on Taiko.

How does Hana differ from TradFi lending?

Hana introduces a permissionless and decentralized lending system, meaning that Hana's services are accessible by anyone with access to the internet, regardless of their financial or geographical background. You will be able to deposit assets or get a loan permissionlessly.

Core Fundamentals of Hana's Money Market

1. Lend assets on Taiko and earn lending interest (And incentives!)

2. Borrow assets on Taiko and pay borrowing interest

Supply Assets on Hana

Hana enables users to supply their cryptocurrency assets onto the Hana platform as a liquidity provider. Hana aggregates the supply from each user into a pool of assets controlled by smart contracts, making it a fungible resource for the protocol, while allowing users to withdraw their supply at any time.

In return, liquidity providers will receive corresponding hToken (e.g., hETH, hTTKO, hUSDC), which entitles them to redeem the supplied assets in the future. The hTokens’ value is pegged to the value of the corresponding supplied asset at a 1:1 ratio and can be safely stored, transferred or traded. All yield collected by the hTokens' reserves are distributed to hToken holders directly by continuously increasing their wallet balance.

Borrow Assets on Hana

Using supplied assets as collateral, users can borrow supported cryptocurrencies from Hana's asset pools. Hana functions on an over-collateralisation model which requires borrowers to supply sufficient collateral before borrowing is enabled.

Each asset within Hana has a Collateral Factor (i.e., Loan-to-Collateral ratio), which signifies the amount available to be borrowed for each collateralized asset. A Collateral Factor of 80% means that the users can only borrow up to 80% of the value of their collateralized assets.

Should the value of the collateralized assets drop, or the value of the borrowed assets increase, a portion of the outstanding borrowing will be liquidated at the current market price less a % of liquidation discount. The proportion of the borrowing assets to be liquidated varies depending on assets and market conditions. Users can prevent the liquidation event from happening, either by increasing the amount of collateral (i.e., supplying more assets into Hana) or by repaying some portion of their loan to reduce the amount borrowed. Each loan will carry a compounded interest rate and can be repaid at any time.

The Collateral Factor for each asset is set based on several inherent risk characteristics of the asset, such as availability in the reserve and the asset’s liquidity across Taiko markets. These ratios and their parameters are currently determined by the Hana team based on a robust risk assessment framework.