Casten Protocol
Repayment motivations
Describes the motivations of borrowers to not default on their agreed borrowing terms
A key question is what incentives Borrowers have to pay back what they borrow.
The first incentive is that Borrowers likely want to continue borrowing from Casten. The moment they are late on a payment, Borrowers are unable to borrow further from any Borrower Pool. Also, liquidity providers will likely stop supplying more capital if a Borrower is continually late on repayments.
The second incentive is that because Borrowers need to publicize their address when proposing pools , their on-chain history becomes public to future creditors, even to those off-chain. Further these borrowers are typically backed by other funds and investors in their business and having a default history on-chain will affect their credibility with these investors.
Lastly, LPs may form off-chain legal agreements with Borrowers. LPs may require such an agreement to be in effect, either with them directly or with another entity, in order to be willing to supply capital. In these cases, the legal agreement and potential recourse are another important incentive for Borrowers to not default.
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