Funding
The funding pool is a pool of funds from which traders can borrow to open leveraged positions.
Deposits and Withdrawals
Users can deposit tokens into the funding pool. In return they receive LP tokens which indicate how much of the pool they are entitled to withdraw. As interest and liquidation rewards accumulate the amount that they are entitled to increases.
Consider Alice; She deposits 100 ETH into a funding pool that is the size of 100 ETH already. In return she receives 50% of the LP token supply. If she withdraws she is entitled to 0.5 * (100 ETH + 100 ETH).
Utilization Rate
The total reserves is the sum of the un-utilized capital in the funding pool. Capital becomes utilized when users borrow from the pool. The utilization rate is calculated like so:
The max amount Alice can withdraw is based on the size of the total reserves. She can only withdraw, at most, the amount in the total reserves - Though she will still be entitled to more funds if this is insufficient.
Interest Rate
The interest rate is the amount of interest that the borrowed capital accumulates each year. It is based on the utilisation rate - A higher utilisation rate results in a higher interest rate and vice versa. The interest rate calculation is as follows:
The interest multiplier is a parameter that can be voted on and determines the maximum possible interest rate. If a user withdraws 100% of the total reserves, then other lenders are incentivised to deposit capital into the pool and increase the total reserves or users with open positions are incentivised to close their positions and free up capital - This is because a higher util rate results in a higher interest rate.
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