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The targeted audience includes institutional borrowers and companies looking for a specific inventory for a predefined period of time (fixed-term maturity). When posting their request, they open a pool with committed fixed rate due, a collateral type (one or a mixture of the tokens available on the Ethereum networks), and collateralization ratio (loan-to-value from 0 to infinity).
The pools are smart contracts which aim to:
The isolated pool architecture allows lenders to do proper due diligence on the counterparty they are dealing with and put their capital into the pool, offering what they consider to represent the best risk/return profile.
The Protocol avoids discretionary decisions by electing pool delegators to onboard the borrowing institutions and assess the strength of their businesses or balance sheets. Instead, to help lenders assess the risk, LombardFi is integrated with real-time credit scoring agent Credora and real-time auditor Armanino.
By deploying this logic, LombardFi avoids the convergence towards a mix of the riskiest borrowers as the Protocol matures/expands. The design delivers different terms that could be applied to the counterparties depending on the riskiness of their business model and their balance sheet price exposure. This way, the interest rates are not syndicated (all borrowers get the same terms). There are also no discretionary decisions made by a risk committee to determine who the borrowers within a certain pool should be. Additionally, by not sticking to the timeless standard of the alternative solutions, LombardFi is able to deploy 100% of its capital for the duration of the agreement.
The collateralization of the loans is fully at the borrowers’ discretion – could be un-, under-, or over-collateralized, allowing the large borrowers to leverage their brand equity to access liquidity in a capital efficient manner. Alternatively, over-collateralized deals could be offered to achieve better rates or offering yield-generating/idle assets as collateral.
To improve borrower liquidity and predict the amount of collateral required during the loan term, the protocol does not include liquidations or margin calls by design. LombardFi believes the targeted borrowers will avoid reputational risk at any cost. At the same time, the material improvement in their inventory management should result in a substantial competitive advantage for the Protocol when compared to over-collateralized solutions. Last but not least, the improved capital efficiency should translate into higher returns on capital the institutional investors are generating, ultimately passing part of the additional yields generated to Lenders.