⚙️ Introducing Cog Pairs ⚙️

Cog Pair is the latest of the Tinkermaster's machinations: a sleek, cutting-edge lending pool for isolated lending designed with efficiency and lenders in mind. The Cog Pair is designed with a couple of main goals, the first being to provide liquidity for lenders to withdraw when they want, and not need to wait on borrowers to repay fully. Next, each pool is designed to be as stable as possible when adjusting interest rates, to avoid spiking rates on borrowers. Lastly, pools are designed to work together in unison with each other, allowing borrowers to arbitrarily choose their collateral and borrow tokens, very similar to how you can choose your pair on Uniswap by combining pools.

Multi-Hop Loans

The main feature of Cog Pools is that they can be orchestrated with each other to provide arbitrary loan pairs. Here is a diagram to show how this works in practice.

So given these pools, if you wanted to borrow AVAX with ETH as collateral, the Cog router would under the hood: borrow USDC against your ETH, then DAI against your USDC, and then finally AVAX against your DAI. As an end user, you only need to worry about one Aggregate Interest Rate which is the combined rate of all of these sub-loans. Additionally, Vaults will help prevent liquidity fragmentation, and help lenders balance assets across pools they are comfortable with their assets being paired against, giving them full customization to harvest the best yields.

Tinkermaster (aka Protocol-Owned Liquidity)

Each Cog Pair accumulates Protocol-Owned liquidity during times when there are large spikes in interest rates (determined by the pool’s risk tier). In such events, a Cog Pair will accumulate all interest earned 3 days immediately after the interest rate spike and forward it to the Tinkermaster.

By design, the Tinkermaster will perpetually provide liquidity in each pool, and never withdraw from the protocol. This helps build a float in assets, so that lenders can withdraw using the protocol as liquidity while leaving some liquidity for borrowers, who will face less liquidity problems in the event of sudden withdrawals.

Partial Liquidations

In order to support multi-hop loans, cascading liquidations can become an issue during times of market volatility and stress. As such, the Cog Pair will support partial liquidations as a key feature to allow users to re-balance their unhealthy positions before entering states of complete liquidation. This is much healthier for borrowers, and by encouraging activity, it also helps out lenders.

Risk Tiers

Cog Pairs are divided into a couple of risk tiers depending on the asset. The safest assets are stable Cog Pairs, with the lowest collateralization ratio and interest rates. Stable Cog Pairs are designed for lending stable-coins with stable-coins as collateral, acting as a pseudo-swap mechanism, with a need to repay later. The riskiest assets are most volatile, with high collateralization ratio and often low liquidity. Cog Pairs are generally divided into Low, Medium, and High-Risk pairs, which each have collateralization ratios, interest rates, and interest rate elasticity based on the risk the underlying suggests.