Bi-directionality Explained
Two directions of lending/borrowing explained
In Timeswap V2, you can lend/borrow either of the two tokens in a given pool. This enables the same pool to provide both the assets available for lending and borrowing and replaces the need for the second pool. Thus improving the capital efficiency.
Since, due to rebalancing, only one asset is available in the pool for lending/borrowing, if a user wants to lend/borrow the other asset not available in the pool, a DEX is used for swapping
The APR and CDP values will differ when you lend/borrow the two different assets. This is due to the different risk profiles of the two assets and the collateral backing them and also based on the current spot price (S) & transition/ strike price (K) of the pool
Bidirectionality under different scenarios for a ETH-USDC pool with ETH and USDC as two assets with a maturity of one month and transition / strike price (K) of 1 ETH=2000 USDC
Spot price (S) = 2100 USDC, Transition price (K) = 2000 USDC, Pool will be notated as ETH/USDC.
This means there would be USDC in the pool due to rebalancing. In this case, anyone trying to lend ETH can be considered to transact opposite to the pool's state.
Borrowers- In this scenario, there will be a tendency for the borrowers to pay back their debt if the spot price continues to be greater than the transition price at maturity.
Lenders- Lenders lending USDC earns a fixed positive interest rate as long as the price at maturity continues to be higher than the transition
On the other hand, any lender transacting opposite to the state of the pool or lending ETH will bear the loss if the strike price at maturity continues to be less than the transition price. But if the price becomes more than the transition price at maturity, then his profit is higher than the lenders lending USDC
Spot price (S) = 1800 USDC, Transition price (K) = 2000 USDC, Pool will be notated as USDC/ETH. This means there would be ETH in the pool due to rebalancing.
Borrowers- In this scenario, there will be a tendency for the borrowers to pay back their debt if the spot price continues to be lesser than the transition price at maturity.
Lenders- Lenders lending ETH earn a fixed positive interest rate as long as the price at maturity continues to be lesser than the transition
On the other hand, any lender transacting opposite to the state of the pool or lending USDC will bear the loss if the strike price at maturity continues to be less than the transition price. But if the price becomes more than the transition price at maturity, then his profit is higher than the lenders lending ETH
For eg- When lending/borrowing on Timeswap V2, you will notice a huge difference between the APR of both tokens. While lending one token will offer 3% APR the other might offer 1000% APR. The token offering a higher APR is transacting opposite to the pool state
NOTE: Irrespective of which direction or pool state you were lending at, you can always withdraw your Liquidity from the pool by closing your lend/LP position. This comes with a small penalty which is the slippage/cost of liquidity and isn’t charged by anyone. Last modified 1mo ago