Under-collateralised Lending

The Agent continuously monitors the health of loans through an advanced risk metric framework, ensuring the stability and security of the user's financial portfolio. Collateral for loans can be managed flexibly: it may be entirely retained within the User’s Account Wallet (UAW) or partially posted on the lending protocol, with configurations such as 20% collateral placement. The core purpose of the Agent is to ensure that the portfolio within the UAW consistently maintains a net liquidation value equal to or exceeding the loan amount, fortified by a margin of safety.

The margin of safety utilises the confidence interval methodology first published by J. Faraway which applys an upper and lower bound to the expected portfolio value in the next N minutes.

$$\hat{y}_0 \pm t_{n-p}^{(\alpha/2)} \hat{\sigma} \sqrt{1 + x_0^T (X^T X)^{-1} x_0}$$

To facilitate secure and efficient operations, the Agent establishes a unique Users Account Wallet (UAW) for each user. This wallet is tightly integrated with the user's account and operates under strict access controls—interaction with the UAW is restricted exclusively to the wallet address originally used to create it. The user funds this dedicated UAW, with the Agent designated as its sole authorized operator, enabling seamless automation and oversight of financial activities.

Users retain full control over their assets with the ability to request withdrawals at any time. Withdrawals are processed based on the risk exposure and health of the portfolio. If the portfolio risk is within acceptable limits, funds are instantly transferred from the UAW to the user’s connected wallet. In cases where withdrawal requests exceed risk thresholds, the Agent can be instructed to intelligently liquidate positions to first repay the outstanding loan, after which the remaining funds are transferred to the user’s wallet.

The Agent’s primary function is to prevent scenarios where the value of the user’s portfolio falls below the loan’s outstanding balance. It dynamically adjusts collateral, monitors market conditions, and takes proactive measures to maintain loan health, ensuring both liquidity and security. Through its meticulous design, the Agent not only safeguards the user's financial stability but also optimizes operational efficiency, providing a reliable and user-centric risk management solution.

All transactions of the UAW capital are done by instructing the agent, e.g. to execute trades, see the price or value of your assets, purchase an NFT, or borrow/lend, via the chat UI in the T3 app.