Financing RWA liquidity
Borrowing against pending RWA redemptions releases capital for further purchases.
Market makers buying discounted RWAs commit capital until the issuer completes redemption. Gearbox enables borrowing against supported pending redemption claims, allowing part of that capital to be redeployed before settlement.
- Participants: market makers and other buyers of discounted RWAs.
- Credit facility: borrowing against an RWA position, with the pending redemption claim continuing to serve as collateral.
- Operational benefit: reduced capital committed per position, supporting additional purchases within the same capital base.
For example, a market maker pays $950 for an RWA expected to redeem for $1,000. Borrowing $500 releases that amount for another purchase while redemption is pending. The market maker's profit is the redemption spread less borrowing interest and other costs.
From purchase to payout
The purchase and redemption process is unchanged. Borrowing reduces the net capital committed during the redemption period.
After buying the RWA, the market maker transfers it into a Credit Account and requests redemption. Borrowing against the pending claim releases part of the purchase capital, subject to collateral limits. The claim backs the loan until settlement.
The market maker operates a Credit Account, a smart wallet that holds the collateral and borrowed funds. The seller does not need a Credit Account.
Illustrative example
This example uses an ACRED position with an expected redemption value of $1,000, bought at a 5% discount for $950. It assumes 90 days to settlement under a quarterly redemption schedule.
The market maker pays the full $950 first, then requests redemption through a Credit Account and borrows $500, or 50% of the RWA's $1,000 value. The borrowed funds can be withdrawn and used for other trades.
| Purchase and subsequent borrowing | Amount |
|---|---|
| Capital paid to the seller upfront | $950.00 |
| Capital released by borrowing | $500.00 |
| Net capital still committed | $450.00 |
Assuming a constant 6% annual borrowing rate, interest on the $500 loan is approximately $7.40 over 90 days.
| At settlement | Amount |
|---|---|
| Redemption payout | $1,000.00 |
| Debt repaid | −$500.00 |
| Borrowing interest | −$7.40 |
| Remaining payout to the market maker | $492.60 |
| Profit before other costs | $42.60 |
These figures are illustrative, not offered lending terms. They assume the expected payout arrives on time, a constant borrowing rate, and no additional fees or execution costs. A longer redemption period increases funding costs; a lower payout reduces profit and can cause a loss.
Related documentation
- Direct Redemptions: how collateral moves through redemption.
- Credit Accounts: the smart wallet holding the position.
- Delayed Redemptions Liquidation: redemption claims, settlement monitoring, and liquidation.
- Collateral Limits & Specific Rates: configuring funding and collateral limits.