Curvance will initially use Fuse Pools to create isolated risk lending markets. This integration ensures our lending markets are not compromised by the risk and potential flaws inherent in other pools. When you deposit, Curvance stakes the supplied assets back in their respective protocol to earn a yield while you borrow against it. For example, cvxCRV will be staked on Convex and yvBOOST on Yearn. Lenders will receive an fToken minted from the Fuse protocol that represents their share in the pool. If you choose to take advantage of your now unlocked collateral by borrowing against them, these tokens will also be used to redeem your supplied collateral after you pay back the money borrowed.
NOTE: If you are among one of the first to lend assets, you might not earn interest until the pool is bootstrapped with enough liquidity for others to borrow. Hence, you will see a temporary 0% APY for that pool. However, keep in mind that this also entails earning a higher share of the interest in being an early supplier and owning a more significant pool percentage. So on net, it still pays to be early!
Since the protocol routes lender deposits to earn yield, the interest rate is determined mainly by what is offered on the asset's protocol. Interest rates for supplying assets to the pools are based on pool-specific interest rate curves and pool utilization.
Pool utilization is the ratio of borrowing versus supply of an asset. For example if 1,000,000 FRAX are supplied to the pool and 800,000 FRAX are borrowed, pool utilization is 80%.
Interest curves can differ between assets and their respective pools and they usually rapidly rise after a certain percentage of utilization. This can help to protect you as the supplier from not being able to exit your positions because of low remaining liquidity.
Rapid increase in borrow interest rate after 80% utilization
NOTE: The base supply interest rate for a pool is compounding (APY).
Besides that, Curvance applies a fee for managing your assets and unlocking a portion of your stake. This fee goes towards further strengthening the protocol. It is worth noting that these fees are easily justifiable for a user who chooses to redeploy their newly unlocked capital into other protocols to earn additional yield or back into Curvance to leverage their position.