Lend ERC20 Tokens - FIL as Collateral

In this section we describe the process to enable the creation of native to native debt instruments across blockchains with ERC20 tokens as principal and FIL as collateral.

FIL backed ERC20 Loan

Normal Flow

Step 1: Create Loan Offer

• Actor: Lender

• Blockchain: Ethereum (or EVM compatible blockchain)

• Action: Create Loan Offer

• Description: The Lender creates a loan offer and funds the loan offer with the principal (ERC20 tokens).

Step 2: Create Payment Channel

• Actor: Borrower

• Blockchain: Filecoin

• Action: Create a Payment Channel to the Lender's FIL address.

• Description: The Borrower creates a Payment Channel to the Lender's FIL address to lock the required collateral.

Step 3: Create (Seize Collateral) Voucher

• Actor: Borrower

• Blockchain: Filecoin

• Action: Create Voucher

• Description: The Borrower created a Voucher to allow the Lender to seize the collateral in case of default. The Voucher can only be redeemed by the Lender by using the secretA1. The secretA1 is revealed when the Borrower withdraws the loan's principal.

Step 5: Approve Request & Sign (Unlock Collateral) Voucher

• Actor: Lender

• Blockchain: Ethereum (or EVM compatible blockchain)

• Action: Approve Request & Sign Voucher

• Description: The Lender assigns the Loan to the borrower by entering the Borrower's ETH based address and hashed preimage (secretHashA1). Afterwards, the Lender signs a voucher with nonce n+1 and amount = 0 to allow the Borrower to unlock the collateral once the payback is accepted.

Step 6: Withdraw Principal

• Actor: Borrower

• Blockchain: Ethereum (or EVM compatible blockchain)

• Action: Withdraw Principal

• Description: The Borrower withdraws the Loan's principal from the smart contract by revealing the secretA1. This secret allows the Lender to seize the collateral if the Borrower fails to pay back the loan on time.

Step 7: Repay Loan

• Actor: Borrower

• Blockchain: Ethereum (or EVM compatible blockchain)

• Action: Payback

• Description: The Borrower pays back the loan's principal plus interests before the loan expiration date by sending the ERC20 token amount to the smart contract.

Step 7: Accept Payback

• Actor: Lender

• Blockchain: Ethereum (or EVM compatible blockchain)

• Action: Accept Payback

• Description: To accept the Payback, the Lender reveals secretB1 which allows the Borrower to redeem the (unlock collateral) voucher and settle the payment channel.

Step 8: Unlock Collateral

• Actor: Borrower

• Blockchain: Filecoin

• Action: Unlock Collateral

• Description: The Borrower uses secretB1 to redeem the (Unlock Collateral) voucher and close the payment channel.