Refinancing

Refinancing loans is a process in which a user can move from a P2C loan to a P2P loan.

Example of refinancing Barry owns a DeGod which has a 13k USDC floor price. To obtain instant liquidity, he uses Honey P2C loans, and obtains a loan for 5400 USDC. (40% Loan-to-Value).

This loan has a variable interest rate, which accrues over time: the loan will exist until Barry pays it back, and the interest will accrue for the entire duration.

He would like to borrow more at a lower interest rate by refinancing his loan. Barry lists his P2C loan on Honey P2P, offering lenders the opportunity to earn higher yield so that he can borrow more.

The loan now has a fixed duration requested by Barry when refinancing. Barry sets the terms of the new P2P loan: fixed duration, fixed interest and fixed amount. Barry asks for 12k (92% Loan-to-Value), for 10 days at 10% interest.

Capital efficiency

Whereas P2C lenders only have the optimal rate of their funds being utilised (70% utilisation by default), P2P lenders can earn yield on 100% of the funds they supply.

Fixing the duration of loans allows for lenders to boost their yield by having 100% utilisation on supplied assets.

P2C loan: The lending market has 70% utilisation, which means 70% of their supplied assets are being borrowed. This means a lender providing 100$ only has 70% of their funds earning interest: 70$ is earning interest while 30$ is left inactive in the lending pool. P2P loan: If a borrower requests 70$, and the lender only has to provide 70$, meaning the lender earns interest on 100% of their capital.