This document covers basic concepts and math that determine the leverage module's behavior.

Accepted Assets

At the foundation of the leverage module is the Token Registry, which contains a list of accepted types.

This list is controlled by governance. Assets that are not in the token registry are nor available for borrowing or lending.

Once added to the token registry, assets cannot be removed. In the rare case where an asset would need to be phased out, it can have lending or borrowing disabled, or in extreme cases, be ignored by collateral and borrowed value calculations using a blacklist.


Every base asset has an associated uToken denomination.

uTokens do not have parameters like the Token struct does, and they are always represented in account balances with a denom of UTokenPrefix + token.BaseDenom. For example, the base asset uumee is associated with the uToken denomination u/uumee.

Lending and Borrowing

Users have the following actions available to them:

  • Lend accepted asset types to the module, receiving uTokens in exchange.

    Lenders earn interest at an effective rate of the asset's Lending APY as the uToken Exchange Rate increases over time.

    Additionally, for assets denominations already enabled as collateral, the lent assets immediately become collateral as well, causing their borrow limit to increase.

    If a lender is undercollateralized (borrowed value > borrow limit), collateral is eligible for liquidation and cannot be withdrawn until the user's borrows are healthy again.

    Care should be taken by undercollateralized users when lending token amounts too small to restore the health of their borrows, as the newly lent assets will be eligible for liquidation immediately.

  • Enable or Disable a uToken denomination as collateral for borrowing.

    Enabling uTokens as collateral stores them in the leverage module account so they cannot be transferred while in use. Disabling uTokens as collateral returns them to the user's account. A user cannot disable a uToken denomination if it would reduce their Borrow Limit below their total borrowed value.

    If the user is undercollateralized (borrowed value > borrow limit), enabled collateral is eligible for liquidation and cannot be disabled until the user's borrows are healthy again.

  • Withdraw lent assets by turning in uTokens of the associated denomination.

    Withdraw respects the uToken Exchange Rate. A user can always withdraw non-collateral uTokens, but can only withdraw collateral-enabled uTokens if it would not reduce their Borrow Limit below their total borrowed value.

  • Borrow assets of an accepted type, up to their Borrow Limit.

    Interest will accrue on borrows for as long as they are not paid off, with the amount owed increasing at a rate of the asset's Borrow APY.

  • Repay assets of a borrowed type, directly reducing the amount owed.

    Repayments that exceed a borrower's amount owed in the selected denomination succeed at paying the reduced amount rather than failing outright.

  • Liquidate undercollateralized borrows a different user whose total borrowed value is greater than their Liquidation Threshold.

    The liquidator must select a reward denomination present in the borrower's uToken collateral. Liquidation is limited by Close Factor and available balances, and will succeed at a reduced amount rather than fail outright when possible.

    If a borrower is serverly past their borrow limit, incentivized liquidation may exhaust all of their collateral and leave some debt behind. When liquidation exhausts the last of a borrower's collateral, its remaining debt is marked as bad debt in the keeper, so it can be repaid using module reserves.


A portion of accrued interest on all borrows (determined per-token by the parameter ReserveFactor) is set aside as a reserves, which are automatically used to pay down bad debt.

Rather than being stored in a separate account, the ReserveAmount of any given token is stored in the module's state, after which point the module respects the reserved amount by treating part of the balance of the leverage module account as off-limits.

For example, if the module contains 1000 uumee and 100 uumee are reserved, then only 900 uumee are available for Borrow and Withdraw transactions. If 40 uumee of reserves are then used to pay off a bad debt, the module acount will have 960 uumee with 60 uumee reserved, keeping the available balance at 900 uumee.

Oracle Rewards

At the same time reserves are accrued, an additional portion of borrow interest accrued is transferred from the leverage module account to the oracle module account to fund its reward pool. Because the transfer happens instantaneously and the accounts are separate, there is no need to module state to track the amounts.

Derived Values

Some important quantities that govern the behavior of the leverage module are derived from a combination of parameters, borrow values, and oracle prices. The math and reasoning behind these values will appear below.

As a reminder, the following values are always available as a basis for calculations:

  • Account token and uToken balances, available through the bank module.
  • Total supply of any uToken denomination, stored in leverage module State.
  • The leverage module account balance, available through the bank module.
  • Collateral uToken amounts held in the leverage module account for individual borrowers, stored in leverage module State.
  • Borrowed denominations and adjusted amounts for individual borrowers, stored in leverage module State.
  • Interest scalars for all borrowed denominations, which are used with adjusted borrow amounts
  • Total adjusted borrows summed over all borrower accounts.
  • Leverage module Parameters
  • Token parameters from the Token Registry

The more complex derived values must use the values above as a basis.

Adjusted Borrow Amounts

Borrow amounts stored in state are stored as AdjustedBorrow amounts, which can be converted to and from actual borrow amounts using the following relation:

AdjustedBorrow(denom,user) * InterestScalar(denom) = BorrowedAmount(denom,user)

When interest accrues on borrow positions, the InterestScalar of the denom is increased and the adjusted borrow amounts remain unchanged.

uToken Exchange Rate

uTokens are intended to work in the following way:

The total supply of uTokens of a given denomination, if exchanged, are worth the total amount of the associated token denomination in the lending pool, including that which has been borrowed out and any interest accrued on it.

Thus, the uToken exchange rate for a given denom and associated uDenom is calculated as:

exchangeRate(denom) = [ ModuleBalance(denom) - ReservedAmount(denom) + TotalBorrowed(denom) ] / TotalSupply(uDenom)

In state, uToken exchange rates are not stored as the can be calculated on demand.

Exchange rates satisfy the invariant exchangeRate(denom) >= 1.0

Borrow Utilization

Borrow utilization of a token denomination is calculated as:

borrowUtilization(denom) = TotalBorrowed(denom) / [ ModuleBalance(denom) - ReservedAmount(denom) + TotalBorrowed(denom) ]

Borrow utilization ranges between zero and one in general. In edge cases where ReservedAmount(denom) > ModuleBalance(denom), utilization is taken to be 1.0.

Borrow Limit

Each token in the Token Registry has a parameter called CollateralWeight, always less than 1, which determines the portion of the token's value that goes towards a user's borrow limit, when the token is used as collateral.

A user's borrow limit is the sum of the contributions from each denomination of collateral they have deposited.

  collateral := GetBorrowerCollateral(borrower) // sdk.Coins
  for _, coin := range collateral {
    borrowLimit += GetCollateralWeight(coin.Denom) * TokenValue(coin) // TokenValue is in usd

Liquidation Threshold

Each token in the Token Registry has a parameter called LiquidationThreshold, always greater than or equal to collateral weight, but less than 1, which determines the portion of the token's value that goes towards a borrower's liquidation threshold, when the token is used as collateral.

A user's liquidation threshold is the sum of the contributions from each denomination of collateral they have deposited. Any user whose borrow value is above their liquidation threshold is eligible to be liquidated.

  collateral := GetBorrowerCollateral(borrower) // sdk.Coins
  for _, coin := range collateral {
     liquidationThreshold += GetLiquidationThreshold(coin.Denom) * TokenValue(coin) // TokenValue is in usd

Borrow APY

UX uses a dynamic interest rate model. The borrow APY for each borrowed token denomination changes based on that denomination's Borrow Utilization.

The Token struct stored in state for a given denomination defines three points on the Utilization vs Borrow APY graph:

  • At utilization = 0.0, borrow APY = Token.BaseBorrowRate
  • At utilization = Token.KinkUtilizationRate, borrow APY = Token.KinkBorrowRate
  • At utilization = 1.0, borrow APY = Token.MaxBorrowRate

When utilization is between two of the above values, borrow APY is determined by linear interpolation between the two points. The resulting graph looks like a straight line with a "kink" in it.

Lending APY

The interest accrued on borrows, after some of it is set aside for reserves, is distributed to all lenders (i.e. uToken holders) of that denomination by virtue of the uToken exchange rate increasing.

While Lending APY is never explicity used in the leverage module due to its indirect nature, it is available for querying and can be calculated:

LendAPY(token) = BorrowAPY(token) * BorrowUtilization(token) * [1.0 - ReserveFactor(token)]

Close Factor

When a borrower is above their borrow limit, their open borrows are eligible for liquidation. In order to reduce the severity of liquidation events that can occur to borrowers that only slightly exceed their borrow limits, a dynamic CloseFactor applies.

A CloseFactor can be between 0 and 1. For example, a CloseFactor = 0.25 means that a liquidator can at most pay back 25% of a borrower's current total borrowed value in a single transaction.

Two module parameters are required to compute a borrower's CloseFactor based on how far their TotalBorrowedValue exceeds their BorrowLimit (both of which are USD values determined using price oracles)

portionOverLimit := (TotalBorrowedValue / BorrowLimit) - 1
// e.g. (1100/1000) - 1 = 0.1, or 10% over borrow limit

if portionOverLimit > params.CompleteLiquidationThreshold {
  CloseFactor = 1.0
} else {
  CloseFactor = Interpolate(             // linear interpolation
    0.0,                                 // minimum x
    params.CompleteLiquidationThreshold, // maximum x
    params.MinimumCloseFactor,           // minimum y
    1.0,                                 // maximum y

Market Size

The MarketSize of a token denom is the USD value of all tokens loaned to the asset facility, including those that have been borrowed out and any interest accrued, minus reserves.

MarketSize(denom) = oracle.Price(denom) * [ ModuleBalance(denom) - ReservedAmount(denom) + TotalBorrowed(denom) ]