Auction Mechanism

The auction mechanism used in the Term Structure is a batch auction, which is similar to most bond auction mechanisms in traditional finance. This method is designed to be fair and efficient for all participants. In batch auctions, borrowers and lenders are eligible to place orders of any amount greater than the minimum bid amount and interest rate within the bidding window before the cut-off time for the coming auction.

After the bidding window closes, the system begins the matching process. This involves automatically sorting the interest rates and amounts that match the orders from borrowers and lenders.

The matching rules are shown below:

• Borrowers need to place orders with the information including collateral token type, collateral amount, borrowed token type, borrowed amount, borrowed tenor, and the highest acceptable interest rate for borrowing.

• Lenders need to place orders with the information including lending token type, amount, tenor, and the lowest acceptable interest rate level for lending.

• During the matching process, borrowers are sorted by the time when they place their orders. This means that the earlier a borrower's order is placed and accepted, the earlier it will be considered for matching in the auction mechanism.

• During the matching process, lenders are sorted by the level of interest rates in their orders. This means that the lower the interest rate in a lender's order, the higher the priority it will have in the matching process for each auction. If two or more lenders place orders with the same interest rate for the same token in the same auction, their orders will be sorted by the time when they were placed. This means that the earlier an order is accepted, the higher the priority it will have in the matching process.

• The matching process is sequential and follows the sorted orders from borrowers. Each borrower's order is matched with all eligible lender orders to find the unified lending rate when the entire amount of the borrow order is fulfilled or there are no more eligible lend orders. The highest interest rate level in any matching will be the unified lending rate for both borrowers and lenders in that round of matching, and all lenders in this round will receive the same interest rate.

• The acceptable tokens for collateral, borrowing and lending are ETH, wBTC, USDC, USDT, and DAI (Supported Tokens).

• The Term Structure platform allows an LTV (Loan-to-Value) Ratio of 75% for any collateral and underlying pair with wBTC or ETH, and an LTV ratio of 90% for the Stablecoin-Pair Loan. This means that users can borrow up to 75% or 90% of the value of their collateral, depending on the type of assets involved. The platform also has a liquidation mechanism in place to secure lenders' returns when there is a significant drop in borrowers' collateral value.

• In any batch auction, there might be multiple interest rates for different borrowers and lenders.

• Regardless of the time when a loan is successfully matched in the auction, the interest will be calculated from 00:00 (UTC+0) on the following day. The borrower must repay the debt by 23:59 (UTC+0) on the maturity date to avoid being liquidated. This is to ensure that all ERC-20 fixed-income tokens with the same maturity date are fungible.

• During the auction process, no user is able to view the addresses or order details of other participants'. This ensures the fairness of the auction.

• Borrowers' orders that are not filled in the current auction will be automatically entered into the next round of the auction with higher priority, based on the original timing of the accepted orders. This ensures that all eligible orders are considered in the auction, and earlier orders are given priority over later ones.

Based on the rules and mechanisms described above, both borrowers and lenders will receive interest rates that are better than or equal to their own expectations. This means that borrowers may be able to borrow at lower interest rates than they expected, while lenders may be able to lend at higher interest rates than they expected. This contributes to market efficiency and fairness, as it allows borrowers and lenders to find mutually beneficial agreements that align with their individual goals and preferences. This also helps to ensure that the auction process is fair and efficient for all participants.

• Each round of the auction window for placing orders lasts for a few hours.

• The minimum order size (amount) for the auction is approximately USD 100.

• Open orders of borrowers' and lenders' in the auction engine are valid for up to 7 days.