Lending Mechanics

Kaskad operates as an over-collateralized lending market. Users can supply assets to earn interest, or borrow against their deposited collateral. All positions are managed by smart contracts with no manual intervention.

Supplying Assets

When a user supplies an asset to Kaskad, they deposit tokens into a liquidity pool and receive interest-bearing tokens (aTokens) in return. These aTokens represent their share of the pool and accrue interest automatically over time.

How it works:

1. User deposits a supported asset (e.g., iKAS, USDC) into the corresponding pool
2. User receives aTokens at a 1:1 ratio at the time of deposit
3. aTokens accrue interest continuously based on the pool's utilization rate
4. User can withdraw their original deposit plus earned interest at any time by returning their aTokens

Supplied assets serve dual purposes: they earn interest from borrowers paying rates on their loans, and they act as collateral for the supplier's own borrowing positions (if enabled for that asset).

Borrowing Assets

Borrowing requires an existing collateral position. The amount a user can borrow is determined by the Loan-to-Value (LTV) ratio of their collateral.

Example: If iKAS has a 70% LTV and a user deposits $1,000 worth of iKAS, they can borrow up to $700 worth of other assets.

How it works:

1. User must first supply collateral to a Kaskad pool
2. User selects an asset to borrow and an amount within their borrowing power
3. Borrowed tokens are sent to the user's wallet
4. Interest accrues on the borrowed amount based on a variable rate tied to pool utilization
5. User repays the borrowed amount plus accrued interest to close the position

Borrowers maintain a Health Factor that reflects the safety of their position. If the health factor drops below 1, the position becomes eligible for liquidation.

Interest Rates

Kaskad uses a variable interest rate model driven by pool utilization — the ratio of borrowed assets to total supplied assets in a given pool.

• Low utilization → lower borrow rates (incentivize borrowing, attract demand)
• High utilization → higher borrow rates (incentivize repayment, attract new supply)

This mechanism self-balances supply and demand for each asset. Suppliers earn a portion of the interest paid by borrowers, proportional to their share of the pool.

Health Factor

The Health Factor (HF) is the key metric for assessing position safety:

HF = (Risk-adjusted collateral value) / (Total debt value)

The health factor changes in real time as asset prices move. Users should monitor their positions and maintain a buffer above 1.0 to avoid liquidation.

Liquidations

When a borrower's Health Factor drops below 1.0, their position becomes eligible for liquidation. Liquidations are permissionless — any external actor (a "liquidator") can trigger them.

How liquidation works:

1. A liquidator identifies a position with HF < 1.0
2. The liquidator repays a portion of the borrower's outstanding debt
3. In return, the liquidator receives the equivalent value in the borrower's collateral, plus a liquidation bonus (penalty)
4. The borrower's position is reduced but not fully closed

Key design decisions:

• Partial liquidations only. Kaskad does not close entire positions on liquidation. Only enough debt is repaid to bring the Health Factor back above 1.0. This protects borrowers from losing their full collateral due to temporary price movements.
• Permissionless execution. Anyone can act as a liquidator, ensuring the system doesn't depend on a single operator or centralized keeper.
• Liquidation penalty. The bonus paid to liquidators compensates for execution risk and gas costs. The penalty rate is set per asset and adjustable by governance within bounded ranges.

Risk Parameters per Asset

Each supported asset has its own set of risk parameters:

These parameters are set per asset based on volatility, liquidity depth, and oracle reliability. They are adjustable by governance within bounded ranges — for example, LTV can be adjusted ±5% but can never drop below 15%.

Full risk parameter details
How governance adjusts these parameters