Lending Protocol

Market Design Principles

Curvance markets are built with a focus on risk management, liquidity efficiency, and economic security. The protocol employs a novel market architecture that enables both capital efficiency and strong risk management.

Thesis-Driven Markets

Curvance creates thesis-driven micro-ecosystems. Each Market Manager focuses on a specific financial thesis:

• Interest-bearing stablecoins.

• Bluechip long market exposure.

• Volatile LP tokens for a particular DEX or perpetual platform.

• Other specialized asset categories.

This targeted approach allows for customized risk parameters appropriate for each asset class, rather than forcing disparate assets to share the same risk model.

Systemic Risk Reduction

By segregating markets by thesis, Curvance minimizes the contagion risk between asset classes. A volatility event in one market doesn't propagate to unrelated markets, protecting the overall protocol health. Isolated Market Managers are designed to contain risk within their boundaries. If extreme market conditions impact one Isolated Market Manager, other Market Managers remain unaffected, ensuring protocol stability.

Core Market Components

Curvance Token System

Curvance Tokens (cTokens): Interest-bearing tokens representing user deposits that can serve dual purposes:

• Collateral: When configured as collateral, cTokens secure borrowing positions.

• Borrowable Assets: When configured as borrowable, the underlying assets can be borrowed against collateral.

Each cToken wraps an underlying asset and maintains an exchange rate that appreciates over time as interest accrues. The isBorrowable() function determines whether a specific cToken can be borrowed, while collateral status is managed at the account level.

This unified approach simplifies the token architecture while maintaining the flexibility for assets to serve different roles within the lending protocol.

Market Manager

The Market Manager is the central contract that:

• Manages risk parameters for all tokens in its market.

• Handles collateral posting and borrowing interactions.

• Coordinates liquidation processes.

• Enforces position health requirements.

• Monitors and applies interest rate models.

Position Lifecycle

1. Deposit: User deposits underlying assets and receives cTokens representing their share of the pool.

2. Collateral Posting: User activates their cTokens as collateral to secure borrowing capacity.

3. Borrowing: User borrows underlying assets from borrowable cToken markets against their collateral.

4. Repayment: User repays borrowed assets plus accrued interest to reduce debt obligations

5. Withdrawal: User redeems cTokens for underlying assets after ensuring adequate collateralization or full debt repayment.

Asset Management

Collateral and Debt Management System

The asset management has several key components:

• Collateral Caps: Each cToken has a maximum amount of shares that can be posted as collateral, limiting exogenous risk exposure.

• Debt Caps: Each cToken has a maximum amount of underlying assets that can be borrowed, providing additional risk management for lending exposure.

• Collateral Posting: Assets are posted as shares, allowing caps to grow proportionally with any yield-generating strategies.

• Cap Management: Both collateral and debt caps can be decreased even if current utilization is above the new cap, which prevents new risk while not forcing position unwinding.

• Dual-Cap Risk Control: The combination of collateral caps (limiting how much can be deposited) and debt caps (limiting how much can be borrowed) provides comprehensive risk management across boths ides of the lending market.

Dynamic Liquidation Engine (DLE)

The Dynamic Liquidation Engine enables more nuanced position management:

Liquidation State Machine:

1. Healthy Position: Collateral value exceeds required thresholds.

2. Soft Liquidation Threshold: When collateral/debt ratio falls below soft threshold, partial liquidations begin with base penalties.

3. Hard Liquidation Threshold: When ratio falls below hard threshold, complete liquidation is permitted with higher penalties.

4. Bad Debt Threshold: When debt exceeds collateral value, socialized bad debt handling begins.

OEV Liquidation Auctions

Curvance features a next-generation liquidation auction system, OEV (Optimal Extractable Value) that maximizes MEV capture:

1. High-Performance Batch Processing:

   1. Enables concurrent processing of multiple liquidations within a single transaction.

   2. Dramatically reduces latency and gas costs while maximizing throughput efficiency.

   3. Ensures rapid position resolution during market stress.

2. Off-chain Auction Architecture:

   1. Conducts competitive bidding in a gas-efficient off-chain environment.

   2. Sophisticated bidding algorithms rank each proposal based on multiple parameters including close factor and penalty fees.

   3. Enables optimal price discovery while minimizing on-chain footprint.

3. MEV capture:

   1. Transforms traditional MEV extraction into protocol-captured value.

   2. Eliminates wasteful gas wars through structured auction mechanisms.

   3. Provides a more efficient and equitable liquidation process.

Risk Modeling

Curvance enhances risk modeling through:

1. Asset-Specific Risk Parameters: Each asset has customized collateralization requirements.

2. Three-Tier Liquidation System: Soft, hard, and bad debt thresholds for graduated liquidation responses.

3. Volatility-Responsive Liquidations: Aggressive liquidations in volatile periods, gentler in stable periods.

4. Bad Debt Socialization: When a user's debt exceeds collateral, lenders share any shortfall.

The overall architecture provides a powerful framework for managing diverse asset classes while maintaining protocol solvency and capital efficiency.