To get a loan at Ruler, borrowers deposit collateral and receive DAI, USDT or USDC stablecoins in an amount corresponding to the collateral asset’s particular loan-to-value ratio. Ruler accepts a wide variety of collateral, from mainstream assets like ETH and WBTC, to newcomers like INV, PICKLE and DEFI5.
Unlike other borrrowing platforms, the user’s collateral can not be liquidated if the USD price of the collateral drops.
Loans have a fixed duration term, which is usually about one month. If the user does not repay on time, their loan is considered in default, and they forfeit their collateral.
The interest rate of the loan is market-driven and dynamic, but fixed for the full term at the moment the loan is issued.
How to get a loan
Following is the nitty-gritty of how the Ruler borrowing and repayment mechanisms work:
- Deposit collateral — When you deposit collateral, Ruler creates (mints) equal amounts of two tokens for you, RC and RR tokens. The RR token is the receipt for your collateral, and the RC token represents your debt. For example, say you deposit $200 worth of WBTC. Ruler may mint 100 RC and 100 RR tokens for you.
- Receive DAI, USDT or USDC — Ruler then automatically “sells” your RC tokens into a “liquidity pool” for DAI, and provides this DAI to your wallet. The current RC-DAI “price” at that moment determines the total amount of interest you’ll pay over the fixed term, and, hence, your interest rate. Continuing with our example, if the price of RC tokens is currently $0.98, your 100 RC tokens will purchase 98 DAI. Since your debt is 100 DAI, this loss of 2 DAI is your total interest, paid up front. On a one-month term, that would work out to an annual interest rate about 24%. The current annualized interest rates are always displayed on the Ruler website.
This may seem complicated, since we’ve described the mechanics, but in this simple example, you’ve effectively deposited $200 worth of WBTC, received a 100 DAI loan, on which you have pre-paid a total of 2 DAI in interest, netting 98 DAI in your wallet for your usage.
How to repay your loan
Prior to term expiry, you’ll need to repay your loan. There are two ways to do that:
- Pay with DAI — Continuing with our example, before loan expiry, you would return to the Ruler website and “pair” your 100 RR tokens with 100 DAI. Upon deposit of those two tokens, you would receive back your originally deposited WBTC.
- Pay with RC tokens — As an alternative to DAI, Ruler will also allow your loan to be settled with the original amount of 100 RC tokens. When the time comes to repay your loan, it might be advantageous for you to buy RC tokens, and redeem with those, as opposed to redeeming with DAI! Continuing with our example, say RC tokens are still selling for $0.98. In this case, you could buy 100 RC tokens for 98 DAI, and then “pair” the 100 RC and RR tokens to settle your loan. To “buy” RC tokens using DAI, you use the “Lend” feature of the website; a little confusing, yes, but in Ruler “lending” is technically buying RC tokens with DAI!
As expiration date approaches, and all loan holders begin repaying their loans, the market price of RC tokens should tend towards 1 DAI, and so the above to options would generally be equivalent.
Default and loss of collateral
If for any reason you do not repay your debt on time, the loan will be considered in default, and the platform will keep your collateral. Since that mechanism happens at the protocol level, there is no appeal process. It’s therefore important to keep an eye on that term date!
Let’s now look at how to be a lender on Ruler →