# Lending

## Overview

The WCM Lending Market uses a **direct counterparty system**—there are no liquidity pools. You can read more about why we do not use pools in [Order books + RFQ](/essentials/order-books-+-rfq.md). Instead, lenders and borrowers are matched through an **order book**, with the **interest rate as the price**.

* **Interest rate**: annualized, quoted in terms of the underlying asset. Interest is paid in the underlying asset of the loan.
* **Minimum order size**: enforced to prevent spam and errors. Available on the Stats page.
* **Valid rate range**: greater than 0% and less than 100%.

## Borrowing

Importantly, when you Borrow, the Borrow position is a liability, not an asset. When you borrow, you will see both your spot balance increase for that asset (or appear new if you had none) and a new Borrow position appear. The increase in Spot is the asset, and the Borrow position is the liability. Borrowing, without selling, results in no change in net market exposure.

For example, this Portfolio has no market exposure to ETH.

<figure><img src="/files/JJZuvwYbG05YWmb4LLVq" alt=""><figcaption></figcaption></figure>

And this Portfolio is short 0.5 ETH.

<figure><img src="/files/28v4xOZpnYiTu5Xfj1x1" alt=""><figcaption></figcaption></figure>

## Loan Lifecycle

### Loan Origination

* When two orders match, a loan position is established directly between the lender and borrower.
* The lender’s funds are transferred to the borrower.
* **Default loan term**: 10 days (240 hours, calculated to the minute).

### Repayment

* Borrowers may repay early, in part or in full.
* **Interest** is:
  * Accrued by the hour (rounded up).
  * Subject to a **minimum of 8 hours**, even if repaid immediately.

### Term Extension

* Borrowers can extend loans up to **10 additional days from the current time**.
* Example: If 7 days have passed since origination, the borrower may extend another 10 days (total 17).

### Return to the Order Book

* By default, repaid funds are automatically placed back into the order book.
* Lenders can opt out (“do not return”), which also **prevents extensions** by the borrower.

## Counterparty Swap

A unique feature of WCM is that users have full visibility into the portfolio of their counterparty, across all contracts. If a lender does not want to wait for repayment, they can swap their position, in effect swaping their counterparty:

1. Borrow the same amount they lent.
2. Swap their lending position with the new borrowing position, transferring the obligation to a new lender.

**Rate adjustments:**

* If the new rate is **lower**, the borrower benefits from the reduced rate.
* If the new rate is **higher**, the borrower keeps the original rate, and the original lender pays the difference to the new lender.

## Fees

* **No fees at trade execution**.
* Fees apply only when interest is paid.
* Fees are:
  * Calculated on interest, not principal.
  * Paid entirely by the borrower.
  * Adjustable by the exchange operator per participant.

## Capital Requirements

#### For Borrowers (Takers)

* Must hold enough collateral to cover **full 10-day interest + fees** upfront.
* Example: At 5% annual interest, 10-day interest on 1000 ETH is **1.4 ETH (0.14%)**.

⚠️ Important:

* This is **not equivalent to 700x leverage**.
* Using borrowed ETH (e.g., selling on spot) without hedging will trigger **immediate liquidation**.
* With proper hedging (e.g., long ETH perpetuals), high leverage (up to **\~50x**) may be achievable.

#### For Lenders (Makers)

* Requirements are the same as the spot market.
* Capital can be **shared** between spot and lending orders, as per spot capital rules.


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