Key Concepts

Learn more about the fundamental key concepts to use Ajna Protocol

What are the costs of borrowing in Ajna?

When you Borrow in Ajna protocol, you will have to pay an interest, called the borrow rate. It represents the cost of borrowing the tokens, and it's paid to lenders with some part of it going for the protocol. The borrow rate shows what percentage of your debt you will need to pay in 1 year if the utilization of the pool remained constant. The borrow rate is variable, there are no fixed rates in Ajna. They adjust on a 12 hours interval by up to 10% on each update. If for the example the borrow rate of the token you are borrowing is 5% then in 12 hours it can go up or down by 0.5% depending on the utilization of the pool. If there are too many borrowers, the utilization of the pool will go up and the rates will go up to attract more lenders or to incentivize borrowers to repay their debt.

Origination Fee

Every time you borrow in Ajna you will need to pay an origination fee: The origination fee is calculated as the greater of the current annualized borrower interest rate divided by 52 (one week of interest) or 5 bps multiplied by the loan’s new debt. This origination fee is a mechanism designed to avoid interest rate manipulation since the changes in the utilization rate of the pool affect the interest rate. You will need to pay it each time you open a new position or add to your existing debt.

For example, if you want to borrow in the ETH/DAI pool depositing 1 ETH at 1500 and borrow 500 DAI with a 5% interest rate the origination fee will be: 5%/52= 0.48 DAI or 0.05% of 500 which is 0.25 DAI. Since 0.48 DAI is higher, this will be the value charged to the loan. This calculation will happen again if you afterwards want to borrow 100 DAI more.

What is the minimum borrow amount?

The minimum borrow amount or size is 10% of the average loan amount. This check is enforced after a pool has at least 10 loans. This restriction is applied to deter loans of low amounts (dust loans) that might be uneconomical to liquidate.

What is the maximum borrow amount?

The maximum borrow amount is determined by the offered dynamic max loan to value of the pool, your total collateral and the liquidity available. How much you can borrow changes per pool as liquidity changes.

What are the penalties for liquidations in Ajna?

Ajna utilizes a novel liquidation mechanism, explained here. There are 2 liquidation penalties for borrowers:

1. First, when a loan is kicked: 90 days of interest is added to the loan. The borrower has a 1-hour grace period to repay the debt or add more collateral before the loan is moved into auction. The kicking action means that the loan is moved to a liquidation queue, where after one hour the liquidation Dutch auction starts.

2. After the grace period has passed, a 7% penalty is applied, increasing the total debt to be recovered with the deposited collateral.

During all this, the user can pay back their debt or add more collateral to move the loan outside the liquidation auction or queue. If a partial liquidation re collateralizes the loan, it will be removed from the auction and will continue to be active. Once the liquidation is finished because there is no more debt to repay, the borrower can withdraw their remaining collateral left (if any).

What are the cost of earning in Ajna?

Lending in Ajna is free of charge. Deposits below the active liquidity range will pay 1 day of interest. This is done to incentivize lenders to supply useful liquidity. Deposits at the active liquidity range and above have no cost beyond normal gas transaction cost. You can read more about selecting the right price in here.

What is the lending price?

Lenders in Ajna must select a price to lend out their tokens. This price can be understood as the level at which you believe that borrowers offer enough collateral for your tokens: What Loan to Value would you offer. For example, if the price of wrapped bitcoin is $20,000 USDC, and you lend at $10,000 this means you are comfortable with borrowers taking up to 50% of their collateral as debt.

Another way of framing the lending price is thinking it as a limit order: At which price you would be willing to buy bitcoin with your current token holdings? If the price is the same as before, and you lend at $18.000 you are offering up to 90% LTV to borrowers. If the price of bitcoin goes down, you are practically guaranteed to be left with WBTC instead of USDC.

This happens because if the lending price is higher than the market price, anyone can trade borrow tokens for collateral. Even if liquidations of borrowers are successful, you can expect that actors will trade your tokens for collateral once it goes below your lending price.

During liquidations, the highest lending prices deposits are frozen until the liquidations end and borrowers collateral is sold to recover the debt. In general, liquidations should take at least 6 hours to complete.

Why do I have different tokens to withdraw?

When you lend in Ajna you select a lending price to do so. This lending price acts similar to a limit order. If the price of the collateral changes with time, you should adjust your position to match market changes.

If you didn’t adjust your position and the price of the collateral went below your selected price, arbitrageurs will exchange your tokens for collateral and you won’t be earning any yield. You can swap your tokens back to your desired tokens and deposit again or use your current tokens in the respective pool.

If during liquidations your position was frozen and either liquidation was partially unsuccessful or the price of the collateral went below your selected price, you will have collateral to withdraw instead of the tokens you have deposited.