Protocol Design

The Orion AI v2 Pool is a permissionless lending pool for NFT collateral with automatic tranching. Pool is responsible for organizing lending capital with different risk and rate profiles from depositors into fixed-duration loans for borrowers.

Pools can be instantiated permissionlessly for any ERC721 token. Capital deposited into a Pool carries user-defined risk parameters, including a maximum loan limit, a maximum loan duration, and an interest rate tier. The loan limit imposes a maximum limit that the deposit funds can be used in when the Pool originates a loan. Similarly, the maximum loan duration imposes the maximum duration the deposit funds can be used for. The interest rate tier determines the cost of borrowing the deposit funds.

Borrowers can construct a loan using deposits of ascending loan limits. In turn, the ascending deposits function as the tranches of the loan. The higher loan limit tranches receive greater interest, in exchange for higher default risk. The lower loan limit tranches receive less interest, in exchange for the insurance of the higher tranches. In the event of a default, the highest tranches absorb any loss in descending order, while the lowest tranches are made whole in ascending order, up to the available liquidation proceeds.

Loans originated are of fixed duration with prorated repayments. Borrowers can also choose to cash-in or cash-out refinance their loans, also with proration, allowing them to continually extend loans beyond the Pool's maximum fixed duration, provided suitable deposits are available. Overdue loans are subject to liquidation, but borrowers are afforded a grace period to repay the loan until an external actor triggers the liquidation. Borrowers also receive any liquidation surplus beyond the defaulted loan repayment amount.