Behind the scenes lending
To borrow money, you need to deposit collateral in the protocol and withdraw new fyToken against the collateral. You can continue to sell fyTokens of the underlying token, locking in your borrowing rate. ParaFinance has a built-in Automated Market Maker (AMM) called paraSpace that enables efficient sales of fyTokens. When due, you must repay the debt to recover your collateral. Of course, you can also repay the debt in advance by returning the withdrawn fyToken. Changes in interest rates may affect (positively or negatively) the amount of borrowed assets you need to spend to obtain the fyTokens you need. Be careful when paying off early, as you may incur a higher interest rate than the repayment due. After expiration, if you do not close your position, you will be charged a floating rate to keep your position open
Example
To borrow USDT, as a user, you have to buy fyUSDT (for users of ParaApp, the buyer is actually paraSpace, Para's app-specific automated market maker). Assume ETH is $400
You deposit 0.5 ETH of collateral (worth $200) in the system. This allows you to borrow up to 132 fyUSDT from any available term.
You decide to borrow 100 fyUSDTDec21 on September 31, 2021 (fyUSDT will expire on December 31, 2021).
You sell fyUSDTDec21 on the open market for 98.79 USDT. In effect, you borrowed 98.79 USDT today and have 100 USDT of debt due in 3 months. In other words, you borrow at 5% annual interest. We can demonstrate this by plugging our values into the present value formula and solving for r to calculate our interest rate (we use 0.25 in the exponent because 3 months = 1/4 year): 0.9879=1(1+ )0.25↔ =(10.9879)4−1=0.04990.9879=(1+r)0.251↔r=(0.98791)4−1 =0.0499 After the maturity on December 31, 2021, you can return and pay the 100 USDT debt and get your collateral back.
Maturity
Yield agreements do not require you to pay the debt immediately when it is due. Instead, it charges you variable rate fees based on the underlying asset you borrow and the collateral you use. Therefore, you may want to close out your positions as soon as possible or take on higher debt due to variable rate charges. If your debt grows beyond the allowed collateralization ratio, you will be liquidated. Notes on Collateral Borrowers must maintain a minimum amount of collateral in the system to secure the debt they owe. If borrowers don't, they could be liquidated: their collateral would be forfeited and auctioned off to pay off the debt.
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