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Annual Percentage Rate (APR) is the periodic interest multiplied by the number of periods without compounding or reinvesting the funds after each period. For example, 1.5% monthly X 12 months = 18% APR.
Annual Percentage Yield (APY) assumes reinvestment or compounding of principal and interest after each period. For example, 18% APR compounded monthly is (1.015)^12-1=19.56% APY, 18% APR compounded quarterly is 19.25% APY.
OpenSky deposit pools allow lenders to deposit their crypto, like ETH and USDC, to earn passive income by integrating seamlessly with Aave’s money markets to enhance our EARN vault APY for lenders and battle-tested safety of funds.
OpenSky peer-to-pool product allows easy deposits into our EARN vaults which can be withdrawn at any time. Borrowers can access these pool deposits in less than a minute by staking their whitelisted collection NFTs, such as BAYC and CryptoPunk.
OpenSky peer-to-peer product allows borrowers to submit offers for loans with desired parameters, such as loan amount, loan length, and APR. Lenders can review the list of Bespoke loan offers and use their EARN vault pool deposits to fund the peer-to-peer loans that they like. Lenders can benefit by earning more and they also have the chance to acquire Blue Chip NFTs at attractive valuations in case of borrower default.
OpenSky will maintain a whitelist of NFT collections that can be used for Instant loans. For a lending protocol, the quality of collateral is very important to keep the lenders and the protocols safe. So care should be taken to only provide loans for famous, blue chip collections like BAYC. Later, OpenSkyDAO members will vote on future whitelist additions and deletions.
OpenSky will maintain a whitelist of NFT collections that can be used for Bespoke loans. This whitelist will include the Instant loan whitelist collections, and selected other high quality, but slightly less famous collections, such as Azuki and World of Women (WOW).
This is where lenders can view and fund Bespoke loan offers that have been submitted by Bespoke borrowers.
For Instant loans, each whitelisted collection will have a DAO-changeable parameter that sets the loan period. For example, BAYC loan length=28 days. Borrowers can repay early with no penalty and can modify the loan indefinitely.
When the loan matures, borrowers will have a grace period (initially set to 48 hours) to modify or fully repay their loan. Borrowers must take action by the close of the grace period or they will lose their pledged NFTs with no recourse.
Instant loan borrowers have the right to modify their Instant loans anytime, but they must modify or fully repay their loan during the grace period to avoid default. They may need to partially repay the loan during the grace period (if the floor price declines), borrow more (if the floor price rises), or pay the interest due and indefinitely extend the loan by one additional collection term. Note that any Modify action by the borrower will result in a re-calculated APR.
Bespoke and Instant loans can be fully repaid anytime with no penalty. However, Bespoke loans can not be modified or extended and must be fully repaid on or before maturity to avoid losing the pledged NFT.
The utilization rate represents how much of a pool has been loaned out. For example, if I have a pool with $100 of DAI and $80 of those DAI have been borrowed that represents a utilization rate of 80%. DeFi lending protocols, including OpenSky, use a kinked interest rate model which means that the closer the utilization rate gets to 100%, the higher the APR will be. This is to balance the supply and demand of the pool assets. High interest rates will attract more lenders and will discourage additional borrowing, low rates will encourage more borrowing and discourage additional deposits.
A percentage of the borrowed principal that represents the cost of using the funds provided by the lenders and represents the income earned by the lenders for providing capital to borrowers.