♾️1.1 Fixed-Rate Order Book (FROB)
The FROB is an on-chain order book that serves 2 types of markets
lending market (buying credit for cash)
borrowing market (selling credit for cash)
It is possible to place on the FROB both lending and borrowing limit orders and to execute both lending and borrowing market orders.
The execution of market orders produces non-fungible positions in the protocol (not tokenized yet) and it is possible to use the limit orders on the FROB to sell this credit / future cashflow for cash at present value.
This can be seen as an "early exit" mechanism.
A standard order book is two-dimensional since it associates a quantity on the x-axis (usually a price) and a quantity on the y-axis (usually liquidity)
The price space is usually discretized and the liquidity in each bin consists of the sum of the liquidity provided by the various makers, by sending limit orders.
When a market order is sent, the liquidity is consumed in FIFO order.
Example of a spot price order book:
The FROB is instead a 3D order book since, to identify an amount of liquidity, two variables need to be set:
the term of the loan
the lender to borrow from
So it can be visualized as a set of N different 2D order books, associating a rate to an amount of liquidity, for N possible terms.
The FROB supports both lending and borrowing limit orders.
So for a given term, we have a 2D order book for the money market, where:
on the bid side, we have borrowers (credit sellers) who bid rates to borrow money and
on the ask side, we have lenders (credit buyers) who ask rates to lend money
Like in a standard order book, in equilibrium condition, we likely observe a bid-ask spread from around the market rate for that specific term.
For lending limit orders, the liquidity associated with each order, in each 2D order book, is the full amount of USDC the lender has in the system, so this is a cross-term liquidity system.
For borrowing limit orders, the collateral associated with each order, in each 2D order book, is the full amount of ETH the borrower has deposited in the FROB and made available as collateral to borrow.
The FROB has no on-chain matching engine on purpose, to avoid having on-chain loops that could make the system unscalable. Size's front-end and back-end systems will help lenders and borrowers borrower to both
place competitive limit orders and
pick the best limit orders given user input preferences
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