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Pools/Variable Lending Concepts and Terms
Helpful concepts and general terms to understand Jet's Pools application.
See also: More information on how interest rates are calculated in the pooled lending model:
Asset: Refers to the digital token, cryptocurrency, or digital asset used in the protocol. For example, SOL or USDC.
Collateral: The asset deposited with the protocol to secure a loan.
Debt: The value of the loan that is owed or due to the Protocol.
Deficit: The amount by which something, especially a sum of value, is smaller than what is expected and required.
Risk Level Indicator: The indicator showing the health of your margin account. You are required to over-collateralize your loan, i.e. the fair market value of your deposited assets must exceed the value of the amount you are allowed to borrow. This provides for a reduction because the Protocol may seize this collateral in order to recoup the value of the loan in the event of default on a loan. See also, Maximum LTV.
Deposit interest rate: The instantaneous interest rate being earned by depositors. This rate is expressed in annualized form, does not reflect the effects of compounding, and is inclusive of any protocol fees that may be in place. The rate changes as the utilization ratio of the deposited asset changes.
Borrow interest rate: The instantaneous interest rate being paid by borrowers. This rate is expressed in annualized form, does not reflect the effects of compounding, and is inclusive of any protocol fees that may be in place. The rate changes as the utilization ratio of the borrowed asset changes.
Maximum LTV: The maximum ratio of a loan allowed by the Protocol. The Loan-to-value ratio (LTV), is a measure of risk used by the Jet Protocol when deciding how large of a loan to approve. Your LTV represents the relationship between the size of the loan you take out and the value of the property that secures the loan.
Utilization ratio: The fraction of a reserve’s assets that have been borrowed. For example, if the USDC reserve is worth $100,000, and the amount owed to the reserve by borrowers is $65,000, then the utilization ratio is 65%.There would be $35,000 available for further borrowing.
Liquidity: The efficiency or ease with which an asset can be converted into stablecoins without affecting the asset’s market price.
Default: The failure to repay a debt, including interest or principal, on a loan or security. A default can occur when a borrower is unable to make timely payments, misses payments, or avoids or stops making payments.