💡How It Works

1. Liquidity Warehouse

Copra loans are both fully secured on-chain and not overcollateralized. This is possible through the liquidity warehouse mechanism.

The loan is disbursed by lenders to the liquidity warehouse contract which allows fund deployment only to pre-defined, whitelisted liquidity pools on the borrower's protocol. This puts gated boundaries on the funds, enabling the warehouse contract to effectively custody the loan principal by holding the whitelisted pools' LP tokens.

2. Yield Abstraction

The fixed-yield for lenders is essentially guaranteed by the upfront deposit posted by borrowers. More generally, borrower deposit acts as an insurance buffer, which also covers whenever there is any loss from drawdown risk or liquidity risk on the underlying whitelisted pools. Borrowers are attributed any excess margin between the floating yield generated by whitelisted pools and the fixed-yield promised to lenders. Hence, borrowers are effectively getting a leveraged yield on the deposit that they posted.

Another helpful way to understand Copra mechanism is that it splits the (2) floating yield from underlying whitelisted pools into (a) fixed-yield for lenders as the senior tranche and (b) leveraged-yield for borrowers as the junior tranche.

3. Debt Covenant

A keeper job monitors in real-time whether there is a breach on the liquidation threshold, which is whether the ratio between the remaining borrower deposit value and the overall loan value is lower than a certain constant. If there is a breach, which means the loan is not sufficiently collateralized, liquidation process will be triggered. Liquidation process would essentially withdraw all deployed loan funds from whitelisted pools back to the liquidity warehouse contracts to protect lenders from any loss.

for more detailed protocol mechanism, please refer to the Mechanics Page

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