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  • Introduction
    • Mortgage product
    • Earn product
    • NEW! Refinance
  • How MortgageFi Works
    • Mortgage borrowers
      • Early repayment feature (ERF)
    • Earn - Liquidity Providers
    • Refinancing
  • Getting Started
    • Components
      • Mortgage Vaults
      • Earning Vaults
      • Loan NFTs
      • Defaults
      • ERC20 Integration
    • Points system
      • Liquidity Incentives
      • Referral Incentives
  • FAQ
    • General
  • MortgageFi Ecosystem
    • Contracts
    • Audits
    • Governance Structure
    • Integrate your own token
      • Integration Process
      • Benefits of Integration
      • Considerations
      • How to apply
    • Self-Balancing Protocol
      • Three Pillars
      • Protocol Design
      • How the System Balances
      • Security and Attack Vectors
      • Advantages of This Model
  • Under-Collateralized Loans
    • What are Under-Collateralized Loans?
    • Key Features
    • How it works
    • Risk Management
    • Benefits for Borrowers
  • Compared to other Lending
    • Use Case Example
  • Comparison Examples
    • Funding Rates and Position Stability
    • Zero-Sum Game vs. Mutual Benefit
    • Long-Term Holding vs. Short-Term Trading
    • Risk Profile
    • Costs and Predictability
  • Yield for Earn Vaults
  • Risk Management
    • Risk Management Strategies
    • Risks and Mitigations
    • User Responsibilities
    • Community Risk Management
    • Ongoing Risk Management
  • Strategies
    • Long vs Short-term Strategy
      • Long-term strategy
      • Short-term strategy
      • Comparing the Strategies
    • Hedge against the bear market
    • Cross-Chain Operations
    • Token Sink
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  1. MortgageFi Ecosystem
  2. Self-Balancing Protocol

How the System Balances

  1. Liquidity Provision:

  • Earn depositors supply stablecoins, incentivized by high yields

  • These stablecoins are used to purchase ERC20 tokens, creating liquidity for borrowers

  1. Price Discovery:

  • ERC20 sellers can sell tokens slightly above market rate

  • The arbitrage opportunity attracts sellers, ensuring a steady supply of tokens

  • Competition among sellers naturally stabilizes prices close to market rates

  1. Borrowing Demand:

  • Attractive loan terms drive demand from borrowers

  • Borrowers' repayments in stablecoins flow back to Earn depositors

  1. Yield Generation:

  • Borrower repayments and fees generate yield for Earn depositors

  • High yields attract more stablecoin deposits, completing the cycle

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Last updated 1 month ago