Lend

Earn enhanced yield by underwriting volatility risk for term loans.

In this guide: Overview · How Lending Works · Returns · Idle Funds · Risk Management · Withdrawing

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Overview

Lending on Stormbit means becoming a volatility seller — you deposit assets into Terms and earn premiums for absorbing collateral price risk during loan terms.

Unlike traditional protocols where value leaks to MEV-extracting liquidation bots, Stormbit lenders capture that premium upfront. Your returns consist of:

Total Yield = Base Interest + Volatility Premium

• Base Interest: Time value of lending capital (similar to risk-free rate)

• Volatility Premium: Compensation for absorbing tail risk during the loan term

You're pricing and taking on risk, not just depositing.

How Lending Works

See How It Works for the general loan flow. As a lender:

1. Create or deposit into a Term — Set your parameters (asset, fee, hook) or join an existing pool

2. Funds become available — Capital ready for loan allocation

3. Allocate to loans — Manual approval (P2P) or automated (hooks)

4. Earn yield at maturity — Receive principal + interest when borrowers repay

5. Withdraw or reinvest — Pull funds out or continue earning

Your unique role: You capture the volatility premium that MEV bots extract on traditional protocols.

Understanding Your Returns

Premium Structure

Borrowers pay an all-in rate that compensates you for two distinct components:

$$r_{total} = r_{base} + r_{vol}$$

Variable	Description
rbase	Base interest rate (time value of capital)
rvol	Volatility premium (tail risk compensation)

Example: For 12% APR loan, r_base ≈ 5% and r_vol ≈ 7%

For 50,000 USDC over 30 days: 50,000 × 0.12 × (30/365) = 493 USDC

The volatility premium is what makes Stormbit different. On traditional protocols, this value goes to MEV bots who liquidate positions. On Stormbit, it stays with you as the lender.

Fee Distribution

Interest is split: 8% protocol fee, 1% lender fee, 91% to depositors.

For full fee breakdown and examples, see Fee Structure.

Effective Yield

Your actual yield depends on:

• Utilization: % of deposits allocated to loans

• Average Premium: Risk-adjusted APR across your portfolio

• Loan Durations: Turnover rate of capital

$$APY_{eff} = U \cdot r_{avg} \cdot 0.91$$

Variable	Description
APYeff	Effective APY for lenders
U	Utilization rate (% of funds allocated)
ravg	Average premium across portfolio
0.91	Net to depositors (after 9% fees)

Example: 0.80 × 0.15 × 0.91 = 10.9%

The higher the risk you underwrite (higher LTV, longer duration, more volatile collateral), the higher your volatility premium component.

Idle Fund Strategies

Capital waiting for loan allocation can still earn yield via hooks:

AaveV3 Hook

Automatically deposits idle funds to Aave:

Your deposits → Hook detects idle funds → Deposits to Aave
                                        → Earns Aave APY
                                        → Withdraws when loan allocated

Benefits:

• No idle capital

• Additional yield while waiting

• Automatic management

Risk Considerations

Credit Risk

If borrowers default, collateral is auctioned. Potential outcomes:

Scenario	Your Recovery
Auction covers debt	100% principal + interest
Auction < debt	Partial recovery
Auction = 0 (worthless collateral)	Total loss

Mitigation Strategies

1. Diversify across borrowers — Don't allocate everything to one loan

2. Conservative LTV — Lower LTV = more collateral buffer

3. Short durations — Less time for things to go wrong

4. Quality collateral — Stick to liquid, stable assets

Locked Capital

Once allocated, funds are locked until loan maturity or default:

• Cannot withdraw allocated funds

• Must wait for loan settlement

• Plan for liquidity needs

Managing Risk: Hedging Strategies

As a Stormbit lender, you earn premiums that compensate you for bearing collateral price risk during the loan term. You have full control over how you manage this risk.

Understanding Your Exposure

When you fund a loan, you're exposed to delta risk — the sensitivity of your position to collateral price movements. If the collateral drops significantly and the borrower defaults, you receive the collateral instead of repayment.

This means:

• If collateral holds value: Borrower repays, you earn your premium

• If collateral drops & borrower defaults: You receive collateral worth less than the loan

The premium you earn is compensation for this risk. But you can also actively hedge it.

Hedging Strategies

TL;DR:

Strategy	One-Liner	Complexity
Buy Puts	Pay premium for defined downside protection	Low
Delta Hedge (Perps)	Short perps to offset price exposure	High
Passive	Accept collateral at default — like a limit buy	None
Hybrid	Mix strategies based on position size	Medium

Detailed Comparison:

Strategy	How It Works	Best For	Complexity
Buy Put Options	Purchase puts on the collateral asset. If price drops, puts pay out and offset your loss.	Risk-averse lenders wanting defined max loss	Medium
Delta Hedge with Perps	Short perpetual futures proportional to your exposure. As collateral drops, your short gains. Requires rebalancing.	Active lenders comfortable with derivatives	High
Passive (Limit Order)	Don't hedge. Accept that default = receiving collateral at a discount. Effectively a limit buy order.	Lenders bullish on collateral long-term	Low
Hybrid Approach	Combine strategies — e.g., partial hedge with perps + OTM puts for tail risk	Sophisticated / institutional lenders	High

Example: Hedging a 100 ETH Loan

Position:
├─ You lend: $200,000 USDC
├─ Collateral: 100 ETH ($240,000 at $2,400/ETH)
├─ LTV: 83%
├─ Premium earned: 5% ($10,000)
├─ Duration: 30 days

Unhedged Outcome if ETH drops 40%:
├─ ETH now worth: $144,000
├─ Borrower defaults (rational choice)
├─ You receive: 100 ETH ($144,000)
├─ Your loss: $56,000
├─ Net after premium: -$46,000

Delta Hedged Outcome (short 83 ETH perps):
├─ ETH drops 40%: perp gains ~$80,000
├─ Collateral loss: $56,000
├─ Net: +$24,000 gain
├─ Plus premium: +$10,000
├─ Total: +$34,000 profit

Put Option Hedge (buy 100 ETH puts, strike $2,200):
├─ Put cost: ~$8,000 (from your premium)
├─ ETH drops to $1,440
├─ Put payout: ~$76,000
├─ Net: Protected, small profit

Choosing Your Strategy

Passive works when:

• You're bullish on the collateral asset

• You'd want to buy it anyway at lower prices

• Premium adequately compensates for risk

Active hedging works when:

• You want yield without directional exposure

• You're managing large positions

• You have access to derivatives markets

Hybrid works when:

• You want some upside exposure

• You need tail-risk protection only

• You're optimizing cost vs. protection

Use the strategies above to manage your own risk exposure.

Withdrawing Funds

Available Balance

Withdrawable = Total Deposits - Locked in Loans

Withdrawal Process

1. Ensure sufficient unallocated balance

2. Call withdraw with desired amount

3. Funds transfer to your wallet

Partial Withdrawal

You can withdraw any unallocated amount. If you want to exit completely while loans are active:

1. Set Term to "freeze" mode (no new loan exposure)

2. Wait for existing loans to mature

3. Withdraw as funds become available

Best Practices

For Conservative Lenders

• Use established collateral types (ETH, BTC, stablecoins)

• Set max LTV at 80% or lower

• Prefer shorter loan durations (7-14 days)

• Use P2P hook for manual approval

For Yield Optimizers

• Enable Aave hook for idle yield

• Accept multiple collateral types

• Use automated allocation hooks

• Balance utilization vs. risk

For Institutional Lenders

• Deploy via multi-sig wallet

• Use timelock hooks for large allocations

• Implement custom reporting hooks

• Consider KYC/compliance hooks

Summary

Aspect	Details
Minimum deposit	Protocol-configured per asset
Lock period	Until allocated loans mature
Expected APY	5-20% depending on utilization and risk
Risks	Credit risk, locked liquidity
Best for	Users seeking volatility-compensated returns