​Lending​
​Borrowing​
​Liquidations​
Backpack features an omnichain money market where users can lend and borrow a variety of assets. Users can deposit from any chain to lend in the unified pool, or borrow against their collateral and withdraw to any supported network - all without bridging. This omnichain money market is a core component of Backpack’s margin system, allowing users to trade with the highest level of capital efficiency.
Lenders can earn yield on their assets by supplying liquidity into the lending pool, which can be borrowed by other users for the following purposes:
Spot margin trading
USDC settlements for perpetual futures trading
Withdraw off the exchange
Unlike most centralized exchanges, interest rates on Backpack are determined by a transparent Utilization Rate model, which users can view at any time on the Lend page. The utilization rate represents the proportion of lent assets that are currently borrowed for a given market. Higher utilization rates indicate stronger borrowing demand, resulting in higher interest rates. Interest rates are calculated and paid every hour.
To protect lenders, all borrows are subject to Backpack’s margin requirements and real time liquidation system. This means that no user can borrow without meeting the necessary collateral requirements, and in the event that their margin fraction drops below the necessary levels, Backpack will immediately begin liquidating their position.
You can start lending on Backpack in two ways.
Lend your assets manually through the Lend page or the Lend modal. Interest generated from your lends is automatically added to your balance and compounded.
Auto Lend is a subaccount setting that automatically lends all available assets sitting in a subaccount into the lending pool. When Auto Lend mode is enabled, you can seamlessly start lending by depositing assets to your subaccount or buying an asset that is eligible to be lent out.
To provide the most seamless and flexible user experience, all lends are redeemed automatically to the maximum extent possible (see note below) for the user, regardless of whether Auto Lend is enabled or disabled. You can redeem your assets in the following ways:
Spot Trading - lends will be automatically redeemed to cover any spot trades. For example, if you are lending USDC and wants to buy BTC, your USDC will be redeemed automatically from the lending pool in order to cover the trade.
Withdrawing - you can also simply withdraw their lent assets without having to manually redeem them. At the time of withdrawal, Backpack will redeem their lends from the lending pool and process the withdrawal.
Manual Redeem - if you no longer wants to lend, but don't need to trade or withdraw the funds, you can simply manually redeem their assets from their Lend page or the Lend modal (only if Auto Lend isn’t enabled).
Important to note: you can redeem your lends as long as the utilization rate for that given asset allows it. In order to prevent the utilization rate from reaching 100%, Backpack implements a throttling threshold, in which no lends can be redeemed and no additional borrows can occur until the utilization rate dips below that threshold (via more lends or more people repaying their borrows). More detail on this further below.
Interest Rates on Backpack are determined by a Utilization Rate model. Each borrow lend market has its own Utilization Rate curve, which can be found on their respective Lend page. A market's Utilization Rate shows how much of its available assets are borrowed. As more assets get borrowed, interest rates rise.
More specifically, Utilization Rate = Total Borrowed / Total Lent
You can get a comprehensive view of how interest rates are generated on Backpack. At any point in time, you can monitor the following:
Total lending pool supply
Total borrowed amount
Current Utilization Rate
Projected interest rates at various Utilization Rate levels
And more
Interest is charged every hour. The Borrow Rate is purely determined by the Utilization Rate curve. The Lend Rate is equal to Borrow Rate * Utilization.
The utilization rate curve is designed to reduce the risk of reaching 100% utilization, which would block redemptions from the lending pool. The system defines an optimal utilization threshold where interest rates begin to rise exponentially. This makes borrowing increasingly expensive, encouraging repayments, while also making lending more attractive due to higher yields. These market forces work together to reduce the utilization rate.
As an additional safeguard, the system includes a throttle threshold. When utilization reaches this level, all redemptions and new borrows pause. This gives new lenders time to enter the market and borrowers time to repay their debt. The pause also creates a buffer for redeeming collateral from accounts undergoing liquidation.
Backpack offers the ability for you to borrow assets for a variety of use cases, such as spot margin trading. Borrowed assets go into your available balance, which can be used to place orders or make withdrawals as long as the margin requirements are met.
Contrary to most Borrow Lend protocols/products, you don’t need to supply assets into the lending pool before being able to borrow on Backpack. As long as there is Available Equity in the subaccount, users can start borrowing.
Here are the three different ways to borrow on Backpack.
Borrows can be originated manually through the Borrow tab on the Lend page.
Note that the Auto Lend setting automatically repays all borrows in a subaccount. As a result, manual borrowing is disabled when Auto Lend is enabled, since any manual borrows would be immediately repaid. When Auto Lend is enabled, borrows can only be made through Spot Margin or Margin Withdrawals.
You can automatically borrow through spot margin by checking the Margin checkbox on the order entry user interface and spending more than what they currently have or selling an asset that they don’t hold. For example, if you hold USDC and wants to short sell ETH spot, you can simply enable Margin and sell ETH. This will trigger a borrow for you, removing the need for making a manual borrow beforehand in order to trade with it.
Similarly, you can borrow against your collateral when withdrawing an asset that you currently don’t hold by checking the Margin checkbox on the withdrawal modal. The maximum withdrawable amount with borrow will be determined by your current Available Equity.
Borrows can be repaid in the following ways:
If you hold the asset you owe, you can manually repay it on the Borrow tab on the trade page by clicking Repay, or through the Repay tab on the Lend page. As explained previously, note that if Auto Lend is enabled, you won’t be able to make manual repayments as any borrows will be repaid automatically if there is an available balance to do so.
The proceeds of a spot margin trade can be used to repay borrows. For example, assuming you owe 1 SOL, if they buy 1 SOL with Margin enabled on the trade, that SOL will be automatically used to repay the outstanding borrow.
When Auto Lend is enabled, all borrows are repaid automatically as soon as there is available balance in the account. That means that if you owe 1 SOL, you can simply deposit 1 SOL into the subaccount and the debt will be repaid automatically.
Backpack has a tiered liquidation model that prevents your account from going bankrupt. First, the system attempts to liquidate positions through the orderbook. If positions are too large or if a user's margin fraction falls below their auto-close threshold, liquidation occurs against Backstop Liquidity Providers.
In the edge case that prices are falling extremely rapidly and the system is not able to liquidate a borrower’s position on time, Backpack employs an auto-deleveraging (ADL) mechanism to ensure that the lender receives the value of their lend in notional terms. To illustrate this:
Assume a Borrower is borrowing 1 BTC from a Lender
Borrower is not holding BTC in their account. They either withdrew it or traded it into another asset.
The Borrower’s account goes bankrupt. BTC is trading at $100,000.
The Lender is still expecting their money. In this edge case, the liquidation system would liquidate the Borrower’s assets, and pay out $100,000 to the Lender in notional terms, rather than 1 BTC.
In conclusion, Backpack’s liquidation system has levels of backstop liquidity in place to maintain stability in the market and protect lenders. In extreme cases, the primary mandate of the margin system is to make sure that the Lender receives the value that they lent, either in the actual token or in notional USD terms at the time of liquidation.
When a market reaches 100% utilization, lent assets cannot be redeemed. This creates a potential risk since Backpack allows lent assets to be used as collateral. If a user with lent collateral faces liquidation, but their assets cannot be redeemed due to full utilization, Backpack employs an Auto-Deleveraging (ADL) mechanism.
The ADL process works as follows:
A user with lent assets as collateral triggers liquidation due to losing positions.
Market utilization reaches 100%, preventing lend redemptions.
The liquidation engine activates but cannot redeem the lender's assets.
The system matches the lender with borrowers who have available collateral (every borrow is collateralized).
An amount in notional USDC terms no greater than the size of the original borrow is transferred from the borrower to the lender's account for liquidation.
The loan is now closed. The lender was successfully liquidated. The borrower's collateral may have been converted to a different asset than originally borrowed, but their account value remains unchanged.