This document describes a Minimal Viable Product (MVP) for Zero-Liquidation Loans (ZLL) protocol.
A Liquidity Pool is the core component of the Automated Market Maker. Initially, in the Liquidity Pooling Phase, it needs liquidity from Liquidity Providers (they can withdraw their assets back only in the Post-Settlement Phase).
Once enough liquidity is available, the protocol switches to the next phase: Automated Market Maker. During this phase, Borrowers and Lenders are able to use the Liquidty Pool.
A Borrower can interact with a Liquidity Pool and borrow a repayment asset RA while providing a collateral in the deposit asset DA. The Borrower buys a CALL option CK with a strike price K from the Liquidity Pool. It lets the Borrower (during the Settlement Phase) to either buy the collateral back, or just walk away and effectively pay the loan back to the Liquidity Pool with the collateral.
A Lender can interact with the Liquidity Pool and lend a repayment asset RA while reserving collateral in the deposit asset DA. The Lender sells a PUT option PK with a strike price K to Liquidity Pool . It lets the Liquidity Pool operator to either sell the repayment asset back to the Lender with a strike price K (during the Settlement Phase), or walk away and pay the Lender back with the collateral. In the latter case, the Lender (during the Post-Settlement Phase) claims the collateral back from the Liquidity Pool.