Lending Market Liquidity Risk

The Pawnfi Lending Market is a decentralized, cross-margin market that enables the supplying and borrowing of different tokens from liquidity pools, and earning interest on assets supplied.

The liquidity of the market is measured by the availability of assets for basic market operations such as borrowing assets backed by collateral and claiming supplied assets along with accrued yield. It is a key metric, as a lack of liquidity will hinder operations.

At any point in time, the liquidity of the market can be assessed through the utilization ratio (i.e., the share of reserve that is currently borrowed versus the supply of each asset) across different tokens. To maximize the liquidity of the protocol and at the same time optimize capital efficiency, interest rate model will serve as an ideal regulator.