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Glossary

A​

Account Abstraction​

Smart contract wallets that behave like externally owned accounts, enabling features like gasless transactions, social recovery, and batched operations. Locale uses account abstraction to allow email/social login.

AMM (Automated Market Maker)​

Decentralized exchange mechanism using liquidity pools and mathematical formulas for asset pricing. Not directly used by Locale Lending but related to DeFi concepts.

APR (Annual Percentage Rate)​

The yearly interest rate without accounting for compound interest. Simple interest calculation.

APY (Annual Percentage Yield)​

The yearly interest rate accounting for compound interest. Locale displays APY for pool returns as it reflects actual earnings.

Arbitrum​

Layer 2 scaling solution for Ethereum using optimistic rollups. Locale Lending is deployed on Arbitrum for lower fees and faster transactions.

B​

Base Rate​

The starting interest rate before risk-based adjustments. Your final rate equals base rate plus risk premium based on DSCR.

Borrower​

A user who obtains loans from Locale pools. Borrowers must complete KYC verification and connect a bank account for DSCR calculation.

BorrowerCredential​

A non-transferable soulbound NFT (SBT) issued to borrowers who complete KYC verification. Required to apply for loans.

C​

Cartesi​

Off-chain computation platform that enables complex calculations (like DSCR) in a Linux environment without high gas costs. Results are verifiable on-chain.

Cooldown Period​

The 7-day waiting period after requesting to unstake before funds can be withdrawn. Protects pool liquidity.

Credential​

See BorrowerCredential or InvestorCredential. Non-transferable tokens proving verification status.

D​

Default​

When a borrower fails to repay their loan, typically after 60+ days of missed payments. Results in credential revocation and collections.

DSCR (Debt Service Coverage Ratio)​

A financial metric measuring ability to repay debt:

DSCR = Net Operating Income / Total Debt Service
  • DSCR > 1.0: Income exceeds debt obligations
  • DSCR < 1.0: Income insufficient for debt

Higher DSCR means lower risk and better loan terms.

G​

Gas​

The fee paid to execute transactions on Ethereum/Arbitrum. Locale Lending transactions require gas paid in ETH.

Grace Period​

The 7-day window after a payment due date during which no late fees are charged.

I​

InvestorCredential​

A non-transferable soulbound NFT issued to investors who complete verification. Different levels (Retail, Accredited, Qualified) unlock different features.

K​

KYC (Know Your Customer)​

Identity verification process required for borrowers and some investor activities. Includes government ID and selfie verification.

L​

Late Fee​

A penalty charged for payments made after the grace period. 2% of payment amount for 8-30 days late, additional 2% after 31 days.

Liquidation​

The process of recovering funds when a borrower defaults. May involve selling collateral or pursuing collections.

Liquidity​

The ability to convert assets to cash. In lending pools, liquidity refers to available USDC for withdrawals or loan disbursements.

M​

Management Fee​

An annual fee (0-2%) charged on total value locked in a pool. Paid to pool operators.

N​

Net Operating Income (NOI)​

Monthly income minus operating expenses. Used in DSCR calculation.

P​

Performance Fee​

A fee (0-20%) charged on profits earned by investors. Only applies to realized gains.

Plaid​

Financial data aggregation service used to connect bank accounts and retrieve transaction history for DSCR calculation.

Pool​

An aggregation of investor capital used to fund loans. Each pool has specific risk parameters and target borrower profiles.

Principal​

The original loan amount, excluding interest. Payments reduce principal over time.

R​

Risk Premium​

Additional interest rate added to the base rate based on borrower risk (DSCR level). Higher risk = higher premium.

RBAC (Role-Based Access Control)​

Security pattern where permissions are assigned to roles rather than individual addresses. Used in Locale smart contracts.

S​

Share​

A token representing ownership stake in a lending pool. Share value increases as the pool earns yield.

Soulbound Token (SBT)​

A non-transferable NFT. Cannot be sold, traded, or moved to another wallet. Used for BorrowerCredential and InvestorCredential.

Stake​

USDC deposited into a lending pool by an investor. Stakers receive shares and earn yield from borrower interest payments.

Staking Fee​

A one-time 0.1% fee charged when staking USDC into a pool.

T​

Timelock​

A delay mechanism requiring a waiting period before certain actions (like contract upgrades) can be executed. Provides time to review changes.

TVL (Total Value Locked)​

The total amount of assets deposited in a protocol or pool. A common metric for DeFi protocols.

U​

Unstake​

The process of withdrawing staked USDC from a pool. Requires a 7-day cooldown period.

USDC​

USD Coin, a stablecoin pegged to the US dollar. The primary asset used for staking and loans in Locale Lending.

Utilization​

The percentage of pool funds currently lent out:

Utilization = Active Loans / Total Pool Value

High utilization may affect withdrawal availability.

Z​

Zero-Knowledge Proof (ZKP)​

Cryptographic method to prove a statement is true without revealing the underlying data. Used to verify DSCR thresholds and KYC status without exposing personal information.

zkTLS​

Technology that proves data came from a specific HTTPS source (like Plaid) without revealing the actual data. Used for privacy-preserving bank data verification.