Money Markets - Technical
Assets are supplied by lenders directly to the protocol, where their tokens are exchanged for either a1 "alr" Token (low risk) or a2 "ahr" Token (high risk) variants of the original token, depending on the risk pool. a1Tokens represent ownership of the low risk pool while a2Tokens represent ownership of the high risk pool. These tokens grant the owner a (generally) increasing amount of the underlying token, dependent on the algorithmically set annual rates. The amount of asset the tokens can be redeemed for may fall in the case of insolvent loans, especially a2Tokens. Lenders earn annual percentage yields simply by holding a[x]Token.
Assets are borrowed from pools by users who provide a1Tokens as collateral. Depending on the collateral, different collateralization ratios are used to determine the amount of tokens that can be borrowed from the pool. Collateralization ratios are adjusted based on the risk profile of the token. Half of the borrowed assets must come from the a2 pool while half come from the a1 pool. However, in the case of insolvency, the insolvent loans are first paid from the a2 pool, and only after the a2 pool is exhausted is the a1 pool used to cover insolvent loans. Since borrowers must use both pools, and the a2 pool represents higher risk to lenders, the market under normal conditions will set substantially higher interest rates for the a2 pool than the a1 pool.
In the case an account falls below the collateralization ratio for at least 30 minutes, the account is considered out of compliance and is forced to liquidate tokens until it is brought back into compliance. A function, when called, sends the borrower’s collateral to be sold directly on Pancakeswap, with other swaps to be introduced in the future. The liquidation fee is rendered to the caller of the function as compensation for gas costs and to reward arbitrators. Anyone can call this function. Since the assets are liquidated directly on Pancakeswap, the caller does not need to hold any assets other than the gas required to execute the function. The function liquidates the close factor, which is the percent of the account that is eligible for liquidation. For this function, Asko has created a liquidation bot, so we are not reliant on these bots being produced by the community like Compound is.
In the case an account falls so far below its collateralization ratio without liquidation that it becomes insolvent, the account is fully liquidated and the difference between the value of the borrowed assets and the assets returned through liquidation is made up from the a2 pool. When an account is below its collateralization ratio for over 30 minutes, it can be liquidated. Liquidators receive 1% of the liquidated asset’s value.