# Repo
Repo is the core lending strategy used across Steakhouse Financial's Prime and High Yield Instant vault product lines. A repo market matches cash savers with risk seekers: risk seekers post collateral worth more than the loan in order to borrow cash from savers. If a position nears its liquidation value, the collateral is seized and auctioned to cure the loan and protect the saver.
The purpose of a vault is to aggregate risk preferences. Users can lend into markets directly or they can rely on a vault operated by a so-called curator. The role of the curator is to reallocate liquidity and select the collaterals to allow.
While traditional repo markets are usually overnight, the vast majority of repo activity onchain today is literally instantaneous, with loans and deposits that can be made and withdrawn every block (12s on Ethereum, faster on other chains). The interest rate is calculated automatically to incentivize more or less borrow activity.
As a reminder, Morpho markets target 90% utilization, meaning that generally 10% of deposited assets are available to meet immediate withdrawals requests. The standard interest rate model seeks to trigger borrower repayments when utilization is >90% by increasing the interest rate charged; the inverse is true when utilization is <90%.
In brief:
* When there are more lenders than borrowers, the interest rate tends to decline to attract new borrowers to come in
* When there are more borrowers than lenders, the interest rate tends to increase - increasing very fast when more than 90% of the liquidity is borrowed to incentivize new lenders to come in
* If a borrow position becomes liquidatable, the collateral is seized from the borrower and auctioned to the fastest bidder, who receives the position at a premium as an incentive to repay the loan on behalf of the borrower
This combination of simple rules creates a dynamic system where each participant is incentivized through market forces.
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