Mechanics

How Tectonic Finance works

Underneath the dashboard, Tectonic is a single shared pool of liquidity per asset. Everything — interest, collateral, borrowing limits — flows from how full each pool is at any moment. Here is the whole machine, one part at a time.

1. Supplying assets

When you supply an asset, your tokens join the pool for that market. Two things happen immediately. First, you start earning the current supply APY, paid out of the interest borrowers are charged. Second, you receive a matching amount of tTokens — for example, supplying USDC mints tUSDC. These receipt tokens are the accounting trick that makes everything work: they do not sit still at a 1:1 value, they slowly become redeemable for more of the underlying asset as interest accrues. Burn your tTokens later and you get back your principal plus everything it earned.

Supplying does not automatically put your assets at risk of being borrowed away from you in a way you cannot exit — the pool keeps a buffer, and you can withdraw whenever there is available liquidity. Read the full supplying & earning guide for the details that matter to lenders.

2. Turning deposits into collateral

Supplying alone earns yield. If you also want to borrow, you enable your supplied assets as collateral. Each asset has a collateral factor — the share of its value you are allowed to borrow against. CRO, for instance, has historically carried a collateral factor around 50%, meaning $100 of CRO unlocks up to roughly $50 of borrowing power. Stablecoins tend to have higher factors because their price barely moves; volatile assets have lower ones.

3. Borrowing

With collateral enabled, you can borrow a different asset up to your combined borrowing limit. The borrowed funds are yours to use — repay them, plus accrued interest, whenever you like; there is no fixed term. Your debt grows continuously at the market's borrow APY, so most users keep an eye on their position rather than setting and forgetting it. Our borrowing guide covers strategy, costs and common mistakes.

4. How interest rates are set

Tectonic does not have a human setting rates. Each market uses an algorithmic model tied to its utilisation — the fraction of supplied funds currently borrowed. The logic is intuitive:

• When utilisation is high, liquidity is scarce, so rates rise — rewarding suppliers and nudging borrowers to repay.
• When utilisation is low, capital is idle, so rates fall — encouraging borrowing and discouraging excess supply.

Crucially, these rates recalculate on every block, not once a day. That is why the APY you see is a live snapshot, not a promise — it drifts as the pool fills and empties.

Figures are illustrative, not live quotes. Always check current rates in the official app.

5. The safety backstop: liquidation

If a borrower's collateral falls too far relative to their debt — because collateral dropped, the borrowed asset rose, or interest accrued — the position becomes eligible for liquidation. A third party repays part of the debt and receives some of the collateral at a discount, restoring the position to health and keeping the pool solvent. This is the mechanism that lets the protocol lend safely without trusting anyone. It deserves its own page: understanding liquidations.

The loop, in one diagram

Suppliers add liquidity and earn; borrowers post collateral and pay; rates balance the two; liquidations protect everyone if a borrower drifts too far. That feedback loop is the entire protocol — the TONIC token simply adds incentives and governance on top.