šŸ”Borrowing and lending

Fixed rate markets

Each time the protocol opens an expirable position for a user, borrowing and lending at a fixed rate occur on other DeFi protocols. At a high level:

  • lending at a fixed rate is equivalent to buying a discounted zero-coupon bond

  • borrowing at a fixed rate is equivalent to selling a discounted zero-coupon bond.

The maturity of the expirable needs to match the maturity of the zero-coupon bonds.

Contango uses different protocols to borrow and lend at a fixed rate. In this section, you would find more information about our integration with:

Flash swaps

Contango uses the concept of flash swaps to make the protocol capital efficient. Let's say a trader wants to buy 1 ETH with 100 DAI. Without using flash swaps the trader would need to first give DAI before receiving ETH. With flash swaps the trader could get 1 ETH first as long as the 100 DAI are given back in the same block. If that's not the case the transaction is reversed. This allows the trader, or a protocol such as Contango, to perform some actions between receiving the 1 ETH, at the start of the transaction, and giving 100 DAI at the end of the transaction.

Position opening

Using flash swaps on the spot market, e.g. on Uniswap, the protocol is now able to meet the collaterisation ratio requirement by:

Position closing

Contango closes a position by reverting the above steps. In the long example in the position closing section, the protocol follows these steps:ā€‹

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