a. Secured crypto based borrowing

BASIC’s secured lending system is based on collateral. Therefore, borrowers must first become a depositor by depositing tokens into the token-specific BASIC wallet powered by BitGo. After depositing their assets, users can borrow other tokens for an amount limited by the LTV value of a specific product. A small origination fee and a cost based on the repayment period is then applied to the said tokens.

※LTV (Loan-To-Value Ratio): An assessment of lending risk that financial institutions and other lenders examine before approving a loan. (Investopedia)

b. Unsecured credit based borrowing

BASIC’s unsecured lending system is based on trust, credit, and reputation. Within the BASIC ecosystem, a user’s credit rating is represented in the form of an ERC-20 compatible token named CREDIT. The CREDIT token is automatically minted via BASIC Oracle on the basis of customers’ recurring crypto finance transactions. Each CREDIT token is equivalent to a value of 1 USDT.

Loan Interest Rate

Loan interest rate (rl) on both the secured and unsecured loans are calculated on the basis of deposit interest rate(rd), net interest, net interest rate spread (rs) and BASIC token staking rate (rt ). A simple interest formula for BASIC loan is set out below. The interest rate is fixed for loans and therefore remains unchanged once the loan is issued.

Origination Fee & Deduction Rate

Users have to pay an Origination Fee, which is a one-time fee to be paid when borrowing is made. It is currently set to 1% of the borrowed amount, and this amount is added immediately to the overall loan amount. The purpose of the origination fee is to safeguard the abuse of short-term borrowings, and will form part of the BASIC equity.

The Deduction Rate refers to the interest amount generated on part of loan that is lent through equity from BASIC. It is used for compensating operators that perform duties to maintain the BASIC platform, and funding the insurance fund.

Utilization Ratio

Tokens supported by BASIC are deposited on a token-specific BASIC wallet powered by BitGo. All deposits are held within a supply pool, and shall be available if borrowers request loans. In addition, depending on the amount contributed to the token-specific supply pool, holders will earn interest on the deposited tokens. To operationalize a functioning withdrawal system, a reserve ratio is implemented.

BASIC implements an utilization ratio to effectively manage loan records. The purpose of using this ratio is to manage the balance sheet and toensure that the user’s deposit amount can be accessed at any time. BASIC has adopted the utilization ratio of 80% which implies that 80% of total funds are available for loan disbursement and the rest is kept as buffer. If the utilization ratio exceeds 80% at any stage, the platform will temporarily stop extending new loans.