Autara Litepaper

This litepaper introduces Autara, a noncustodial lending protocol purpose-built for the Arch Virtual Machine (ArchVM), providing unparalleled flexibility in the creation and management of isolated, permissionless money markets. Integrated directly onto Bitcoin's base layer via ArchVM, Autara empowers users to securely lend crypto assets to earn competitive yields, or borrow against their holdings for immediate liquidity.

Our isolated market architecture, modular design, and robust security model combine to create a lending and borrowing experience that is safer, simpler, and more flexible than ever before.

Designed as a fully integrated web app, Autara seamlessly connects borrowers, lenders, and risk curators through an intuitive frontend, while providing robust infrastructure for lending markets on Arch. With its commitment to simplicity and a security-first approach, Autara facilitates effortless integration across a wide range of applications and services within the Arch ecosystem, positioning itself as the premier Bitcoin money market.

Markets

In Autara, a "market" refers to an isolated lending pool, each pairing exactly one collateral asset with one loan asset.

By isolating these markets, Autara ensures that an exploit, configuration error, or liquidation failure within one market does not impact others. This approach significantly reduces systemic risk, providing a level of security not possible in traditional multi-token pools, where risks are shared and lenders are collectively exposed to vulnerabilities across all assets.

The protocol enables users to deploy isolated lending markets with the following configurable parameters:

• Collateral Asset: The asset users deposit to secure their loans.
• Loan Asset: The asset that users borrow against their collateral, which may also be supplied to earn yield.
• Max LTV: The maximum allowable loan-to-value ratio, defining the percentage of the collateral’s value that users can borrow against.
• Unhealthy Loan-to-Value: The threshold at which loans become eligible for liquidation.
• Interest Rate Model (IRM): Defines how interest rates dynamically respond to supply and demand within the market.
• Oracle: Smart contract providing asset pricing, enhanced by a novel, optional curator-managed oracle confidence interval for greater precision and improved risk management.
• Liquidation Penalties: Dynamic penalties set by market creators, designed to maintain market solvency while minimizing costs to borrowers.

This modular and fully configurable design enables market creators to flexibly deploy lending markets tailored to virtually any asset supported by ArchVM, both today and in the future.

Interest Rate Model

Autara is designed to be agnostic with respect to interest rate models (IRMs), allowing markets to adopt any IRM that best fits their specific needs. By supporting multiple IRMs, Autara empowers market creators to select the model that aligns most effectively with their market strategy and risk profile.

To explore the different interest rate models supported by Autara, see Interest Rate Models.

Price Oracles

Autara employs an oracle-agnostic architecture, enabling market creators to select the most suitable price feed mechanism tailored specifically to their market’s assets, providing maximum flexibility for diverse asset requirements.

Given that oracle vulnerabilities have historically been among the most prevalent DeFi exploit vectors, Autara introduces an innovative, optional curator-managed oracle confidence interval. Curators can set a custom confidence range around oracle prices to safeguard against malicious or erroneous oracle data. For instance, a curator might set the Bitcoin oracle price at $100,000 ± $10,000, preventing the market from accepting unrealistic prices (e.g., $1,000,000) due to oracle failures or exploits. Curators can actively monitor market volatility, update these confidence intervals as necessary, and optionally set expiry periods to automatically disable inactive intervals.

To explore available oracle feeds supported on Arch and how they can be utilized, see Price Oracles.

Liquidations

Liquidation is a crucial risk management mechanism in Autara that safeguards lenders' capital by ensuring borrowers maintain healthy collateral positions. Autara incentivises greater liquidator participation while alleviating the burden on borrowers by offering partial liquidations and dynamic liquidation penalties.

Partial Liquidations

Rather than fully liquidating a borrower’s position, Autara employs partial liquidations, liquidating only the minimum amount of collateral required to restore the account's health factor to 1 when it falls below 0. Liquidators can strategically choose how much debt to settle, allowing multiple liquidators with diverse strategies to incrementally resolve unhealthy positions. This competitive approach effectively prevents bad debt accumulation and reduces market price impacts from sudden, large collateral sales.

Dynamic Liquidation Penalties

Traditional DeFi liquidation penalties have been high to compensate liquidators for execution risks and volatility. Autara addresses this by employing dynamic liquidation penalties, with clearly defined minimum and maximum thresholds set by market creators (e.g., 2–10%). When efficient liquidators quickly act upon liquidation opportunities, borrowers incur only the minimum penalty. As a loan’s LTV worsens, penalties gradually increase. This approach safeguards protocol solvency while reducing penalties for borrowers.

Penalty proceeds are allocated as follows: 50% to liquidators for maintaining solvency, 25% to the protocol, and 25% to the insurance fund.

Fees

Autara charges a competitive 10% fee on the interest rate spread, allocating 5% to the protocol to maintain infrastructure, and 5% to the market curator as an incentive for ongoing market oversight.

Risk Management

Market configuration and risk management are determined entirely by the curator, who is responsible for ongoing oversight. While curators have flexibility in setting market parameters, they never have authority or access to withdraw user funds, ensuring depositors always retain complete control over their assets.

Market creation is permissionless; however, inclusion on Autara’s frontend requires whitelisting to maintain the quality and safety of available opportunities. If you’re interested in having your market featured on Autara, please contact us here.

At Autara, security is at the core of our protocol. Each feature is developed with robust safeguards to protect your assets and deliver a secure, trustworthy experience. To learn more about our security-first approach, see Security & Risks.