🔄Compound Factor

Bridging the Gap between Genesis and Future Values

The Compound Factor is a value derived from the interest rate at the time one Orderbook reaches maturity and until the maturity of the next Orderbook. This value is determined by the Price Waterfall Mechanism during the Auto-roll process. In other words, the protocol continuously records a series of discount rates every three months.

By using the Compound Factor, you can calculate the value of the Genesis Date retrospectively. Conversely, it allows you to convert the Genesis Value into Future Value or present value.

Furthermore, on the protocol, considering the fees, two types of Compound Factors for borrowers and lenders are continuously stored. Below is the formula for this.

Lending Compound Factor (LCF):

$$LCF_{n+1} = LCF_{n} \times (\frac{1}{AutoRollPrice_{n} } - AutoRollFeeRate)$$

Borrowing Compound Factor (BCF):

$$BCF_{n+1} = BCF_{n} \times (\frac{1}{AutoRollPrice_{n} } + AutoRollFeeRate)$$

n: Number of Rolls

If you are a lender, the GV number will be positive and will remain the same. However, if you are a borrower of the asset, the GV will be negative, and your obligation will increase after each roll.

The GV for borrowers is calculated from the GV of lenders and Compound Factors.The calculation of Genesis Value (GV) for each user in our protocol is as follows:

Genesis Value (GV):

$$GV_{n+a} = \begin{cases} GV_{n} & (GV_{n} \geq 0)\\ GV_{n} + x & (GV_{n} < 0) \end{cases} \\[3mm] x = GV_{n} \times (\frac{BCF_{n+a}}{BCF_{n}} \times \frac{LCF_{n}}{LCF_{n+a}} - 1)$$

n: Number of Rolls a: Additional Roll periods

In essence, the GV serves as a reflection of your role (lender or borrower) and the changes in your obligations over time within the protocol.

To calculate your Future Value (FV), you simply need to multiply the Genesis Value (GV) by the Compound Factor from the lending side. This formula allows you to determine the projected value of your assets or obligations in the future, based on the current Genesis Value and the Compound Factor.

Future Value (FV):

$$FV_{n} = GV_{n} \times LCF_{n}$$

n: Number of Rolls

The Compound Factor is a crucial element of the Secured Finance protocol, contributing to efficient value calculation and transaction execution.