Market Structure

All CLOBs - No Pools, No AMMs

All markets on WCM are order books (CLOBs), including the lending market. There are no pools of any kind.

This distinction is important because cross-asset lending pools are subject to adverse selection and subsequently death spirals. George Akerlof won the 2001 Nobel prize for his demonstration of this effect and we don't intend to contradict the man!

Akerlof, G. A. (1970). The Market for "Lemons": Quality Uncertainty and the Market Mechanism. Quarterly Journal of Economics, 84(3), 488–500. https://www.jstor.org/stable/1879431.

An even more practically relevant paper:

Rothschild, M., & Stiglitz, J. E. (1976). Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information. Quarterly Journal of Economics, 90(4), 629–649. https://doi.org/10.2307/1885326

Segregating risk to bilateral contracts protects all users and enables safe portfolio margin.

Looping

Looping is common in DeFi. It happens due to TVL limits on over-collateralized lending venues. Users loop to increase exposure, i.e. increase leverage, to an asset. WCM is under-collateralized, which means there is no need to loop - you can achieve the same result with 1 click and lower liquidation risk.

Fixed term, fixed rate lending

A common problem with pool-based Morpho and Aave-style markets is that the borrowing rate is both overly sensitive and easy to manipulate. All loans on WCM are 10-day terms with a fixed rate over that duration. If as a borrower, you match with a lender at a 6% rate, then you are guaranteed that rate over the 10-day duration of the loan.

If your lender is liquidated, the liquidation engine will source another lender from the order book as part of the liquidation process, and the liquidated lender will pay the difference in rates.

A borrower can only borrow if they can afford the full 10-day interest payment on loan, which is taken out of their available margin.