Introducing Self-Repaying Loans: A First for Efficient Leveraging

TLDR Summary

• Self-Repaying Loans coming for MOR on Avalanche, which means your debt goes down at a fixed rate every second.
• Earn yield + leverage farm at the same time. This means that your debt goes down while your collateral balance goes up — users are effectively paid to leverage farm.
• Borrowers never pay a dime in interest; in fact, they are the ones getting paid to borrow.
• Constant flow of funds into the Peg-Stability Module — helps keep MOR at peg making it easier for users to leverage their yield-farming positions

Intro

At Growth DeFi, our core principle is to provide users with the most efficient earning power through our products (as well as efficient revenue flows for our tokenholders). In line with this, nearly two months ago we launched MOR, an overcollateralized stablecoin that allows users to earn yield while they borrow and leverage yield farming positions for both LPs and single assets.

This, in itself, is something incredibly unique to the space, however with our cross-chain launch onto Avalanche fast approaching, we wanted to take the concept of “earn while you borrow” one step further. And so we are proud to introduce MOR Self-Repaying Loans: get paid to borrow!

Now we know what you’re probably thinking at this point: this sounds way too good to be true. How could we possibly afford to be paying users to borrow money from us? It all stems from how the MOR protocol utilizes the fee revenue from users to generate its own yield, and how by doing so, it can afford to reduce user debt over time!

How MOR’s Self-Repaying Loans Work

For users unfamiliar with the existing mechanics of borrowing and leveraging with MOR, feel free to get acquainted by checking out our docs. For those who understand how that works already, here is how Self-Repaying Loans differ from the current borrowing mechanisms (and are still profitable for both user and protocol):

1. MOR takes a higher performance fee on yield earnt (compared to regular vaults) and converts it to USDC.e
2. This USDC.e is then injected into what’s called a secondary PSM. A secondary PSM works in the same way as the primary PSM but has an extremely high minting price (Instead of it being 1.001 USDC.e to mint 1 MOR it maybe costs 1000000000 USDC.e), but the only one minting MOR in the secondary PSM at these rates is the protocol converting the extra USDC.e from performance fees.
3. This injected USDC.e earns yield by lending through Banker Joe . The key here is that the yield earned increases faster than the negative interest the user is receiving, so both parties are still profiting.
4. The secondary PSM then provides a constant reserve flow that can be used refill the primary PSM & facilitate swaps from MOR > USDC. Arbitrage bots trade the price difference when MOR de-pegs (typically when the primary PSM is empty of USDC.e), moving USDC.e funds from the secondary to the primary, which ultimately facilitates the users ability to easily redeem their MOR for USDC.e.

An Example of Self-Repaying Loans in Action

Using JOE collateral here as an example:

Note: JOE has two forms of yield (all numbers are as of time of writing)

1. Converting JOE to xJOE (with yield coming from swap fees) — currently gives ~21% APR, and 100% of this is always going directly to the user (no performance fee here).
2. Staking xJOE in the Trader Joe farm — currently yielding 30.5% APR.

MOR then applies a 50% performance fee on that 30.5% in form (2), leaving the user with a net 36.25% total APR (21%+15.25%) which converts to a Yield (APY) of 44%.

User Profit

Yield = 44%

Stability Fee/Borrow Rate = -10%

Yield Spread = 54%

And remember, as a user you can also then use borrowed MOR to leverage your existing position (turning the 44% Yield into 60%+).

Protocol Profit

Assuming the user in this example deposits $1000 of JOE and borrows 500 MOR (200% collateralization ratio) the net profits for the protocol would be:

12.2% * 1000 = $122 gross profit per year (via USDC.e Yield)

500 * -10% = -$50 loss per year (from MOR debt depreciation)

= $72.2 net profit annually

And in this case the profit per MOR in circulation annually would be: 72.2/500 = 14.48% return

So with just 100 million MOR in circulation — the protocol would be able to turn an almost $14.5 million net profit annually from this revenue source alone!

But hang on? Why is the end APY lower than the base APR for staking JOE? Where does the yield go?

As mentioned before, in order to counter the debt/risk lowering process, the MOR protocol takes a higher performance fee. The way it works is that it splits the JOE being harvested from staking rewards into 3 buckets:

The JOE being harvested is split into 3 categories to help fund self-repaying loans for the user, therefore decreasing their risk.

Bucket 1: To the user. 50% of rewards get auto-compounded back into the users JOE balance

Bucket 2: To MOR’s Peg Stability Module. 40% of rewards are sold for USDC.e and injected into the secondary PSM. This USDC.e is then available for MOR redemptions, meaning users can easily redeem their MOR for USDC at a fixed rate

Bucket 3: To buyback WHEAT. The remaining 10% of rewards go to WHEAT’s Exponential Buyback Collectors.

So in simple terms, the trade-off is that the MOR protocol takes a higher performance fee on vaults (which it is able to use to generate yield with), while the user has their debt balance — and liquidation risk — constantly reduced overtime.

Available Collateral on Avalanche

Self-Repaying Loans will be available for all collaterals on Avalanche at launch. The initial collaterals supported at launch are shown below:

All assets earn yield through Trader Joe — either through Joe’s farms for LPs, or their money market protocol “Banker Joe” for single assets.

Assisting with MOR’s Peg

MOR ensures its peg by keeping the core characteristics of DAI: overcollateralization, liquidations, and the existence of a PSM.

In addition to these, the Self-Repaying Loans also assist with the peg of MOR by creating a direct flow of USDC.e every single day into the PSM, even if nobody is swapping their USDC.e for MOR. This makes the process of borrowing and redeeming MOR much smoother for users. Plus, by converting some of the yield generated to USDC.e and injecting it into the secondary PSM, the protocol doesn’t have to wait for a user to repay their loan in order to realize that liquidity!

Summary

There are many stablecoins out there, but what makes MOR completely unique is that users are able earn yield on their collateral AND borrow MOR with negative fees. This results in the perfect combination of yield going up + debt (and risk) going down. Using this setup also ensures there are no changes in the logic of existing contracts, which has been perfected by the Maker team over a period of several years. What’s most important for the user is that by using Self-Repaying Loans with MOR, they have a fixed yield aspect and also their risk goes down faster. As a borrower/user, this culminates in your collateralization ratio going up faster (while automatically repaying debt) than by just accumulating more collateral through yield.