Lending
Decentralized lending using V$ (Vow Dollars) enables borrowers to access digital currency loans without intermediaries.
Decentralized Lending of V$
Decentralized lending of V$ (Vow Dollars) enables borrowers to accessdigital currency loans without intermediaries, leveraging blockchain technology for transparency, automation, and trustless transactions. Borrowers use VOW tokens as collateral to secure their loans, ensuring that lenders have recourse to them, even in cases of default.
How Decentralized Lending of V$ Works
Loan Origination:
Borrowers request a loan in V$, specifying the amount needed.
To collateralise the loan, borrowers deposit VOW tokens as collateral, valued at (or above) the loan amount (in USD equivalent terms).
Loan Terms:
Loans are issued with the following conditions:
Repayment Period: 372 days, divided into 12 periods of 31 days.
Interest Rate: Each 31-day period incurs a cost of 1.5%, compounding over the term if unpaid.
Repayment Options:
Borrowers repay the loan in V$ :
In full before the 372-day term ends.
Scenario 1: Loan is Repaid
The borrower repays the V$ loan amount and accrued interest within the 372-day term.
Upon repayment:
The VOW collateral is released back to the borrower.
The lender earns the interest (1.5% per 31-day period), which is added to their initial loan value in v$.
Scenario 2: Borrower Defaults
If the borrower fails to repay the loan within the 372-day period, the lender is entitled to claim the collateral.
The VOW collateral is transferred to the lender, but only up to the equivalent of the loan's initial USD value in V$.
For example:
If the borrower defaulted on a v$1,000 loan, the lender receives up to v$1,000 worth of VOW tokens from the collateral
The lender also receives an additional 18% in v$ from the collateral as a default fee.
Advantages of Decentralized V$ Lending
Trustless and Transparent:
Smart contracts automate the process, ensuring fairness without requiring intermediaries.
Risk Mitigation for Lenders:
VOW collateral ensures lenders are protected from borrower defaults.
Flexible Terms for Borrowers:
Borrowers can repay at any time within the term, reducing interest obligations.
Digital Currency:
Loans are issued in V$, a digital currency which should always worth the same amount of discount in ecosystem businesses.
Potential Risks
Market Volatility:
The value of VOW tokens used as collateral may fluctuate, potentially complicating liquidation in cases of default.
The value of V$ tokens borrowed may fluctuate, potentially complicating repayments.
Impermanent Collateral Coverage:
If the VOW token's value drops below the loan amount, the lender may face insufficient collateral coverage.
Smart Contract Vulnerability:
The system relies on smart contracts, which, if exploited, could impact funds.
Example Scenario
Borrower A requests a loan of v$1,000.
Deposits 1,000 USD worth of VOW tokens as collateral which appreciates to 1,200 USD by maturity of the loan.
Agrees to the 372-day repayment term with 1.5% interest per 31-day period.
If Repaid:
Borrower pays back 1,000 V$ plus accrued interest (e.g., 18% total over 12 periods = 1,180 V$).
Lender collects 180 V$ in interest and the principal.
If Defaulted:
Borrower fails to repay after 372 days.
Lender receives $1,000 worth of VOW tokens from the borrower’s collateral plus 18% default fee ($180) and the additional $20 USD of VOW tokens is reclaimable by the borrower.
Conclusion
The decentralized lending of V$ provides a secure, transparent, and efficient framework for borrowers and lenders. Borrowers gain access to v$ loans using their VOW as collateral, while lenders are incentivized by competitive interest rates and collateral recovery in default scenarios. This model showcases the power of decentralized finance to bridge traditional lending mechanisms with blockchain innovation.
Last updated