Answering the question, what is a coupon?

A coupon gives the owner the right but not the obligation to borrow the underlying asset. The coupon's price dictates the interest rates for both lending and borrowing, hence the term "coupon."

While the Coupon Finance front end and helper contracts have been designed so that with regular usage, an address will most likely never end up holding the coupon ERC-20 tokens, the concept of coupons is necessary to understand how everything works under the hood.

Coupon Lifecycle

Minting Coupons (Deposit)

Coupons can be minted by locking up (depositing) assets eligible for borrowing within the Coupon Finance system. Each coupon corresponds to a specific asset and epoch. Several coupons will be minted if an asset is locked across multiple epochs. These coupons can each be sold in distinct markets. Borrowers intending to secure loans over extended periods must purchase coupons corresponding to future epochs.

Burning Coupons (Withdraw)

Depositors wishing to unlock their assets (withdraw) before the coupon's expiry must burn coupons with the same epochs they minted when depositing. This flexibility allows depositors to lend for shorter durations if the predefined epochs don't align with their requirements. Coupons that expire are not required when withdrawing.

Locking Coupons (Borrow)

Since assets cannot be withdrawn without corresponding coupons, borrowers can securely borrow underlying assets by locking coupons, which removes them from circulation. If all coupons are locked this way, it indicates a utilization rate of 100%.

Unlocking Coupons (Repay Loan)

When borrowers repay the loan, the coupons locked to secure the loan are unlocked and given to the borrower.

Coupon Expiry (Collect)

Every coupon corresponds to a specific epoch, and at the end of that epoch, the coupon expires. If every coupon minted from a deposit expires, the underlying asset of that deposit can be collected.

Last updated