Liquidity Pool

Liquidity Pools are the fundamental building blocks that power the protocol’s decentralized lending and borrowing functionalities. These pools are smart contracts where users deposit their supported assets to earn interest, while borrowers can access liquidity by using their deposited collateral. Like Aave v2, Zeebu’s pools are designed to optimize capital efficiency, minimize risk through over-collateralization, and provide dynamic interest rates that respond to market demand.

How Liquidity Pools Work

1. Deposits and Interest Accrual

   • Users supply assets into a liquidity pool, which then become available for borrowers.

   • Depositors earn interest on their deposits as borrowers pay interest for using the liquidity.

   • Interest rates are algorithmically adjusted based on the utilization rate of the pool, ensuring that supply and demand remain in balance.

2. Borrowing Against Collateral

   • Borrowers can take out loans by providing collateral in excess of the borrowed value, adhering to predefined risk parameters.

   • The collateralized borrowing mechanism minimizes risk for the protocol and its liquidity providers.

3. Automated Interest Rate Models

   • Similar to Aave, Nexus Market employs an interest rate model that adjusts rates based on the pool’s utilization, helping maintain stability even during periods of rapid market changes.

   • This model ensures that as the pool becomes more utilized, interest rates rise, encouraging more deposits and moderating excessive borrowing.

4. Protocol Fees

   • A portion of the interest accrued may be allocated as protocol fees, contributing to the sustainability and development of the Nexus ecosystem.