Swap Collateral

Caér Finance incorporates a purpose-built collateral swap mechanism that enables users to modify their collateral composition directly within the protocol without exiting lending or borrowing positions. Inspired by the architecture of Automated Market Makers (AMM), the system is tightly integrated into the Caér Pool to facilitate real-time, on-chain token exchange with minimal friction.

1. Liquidity Provision and Pool Structure

Liquidity Providers (LPs) contribute token pairs such as Token A and Token B into the Caér Pool, which serves as the central liquidity reserve for swap operations. In return, LPs receive Pool Tokens, representing their proportional ownership and entitling them to a share of the accrued transaction fees from swaps.

The Caér Pool maintains segregated reserves for each token and continuously adjusts these balances as swaps are executed.

2. Liquidity Provision and Pool Structure

Only users with active lending or borrowing positions are permitted to access the swap functionality. This requirement ensures that all swap operations are tied directly to collateral management, thereby improving capital efficiency and reducing unnecessary speculative activity.

When a user initiates a swap such as swapping Token A for Token B the swap logic references current reserve ratios and applies an AMM pricing formula (e.g., constant product model) to calculate the output amount. The system also integrates with Chainlink Data Streams to fetch real-time price references, ensuring fair execution and slippage protection.

3. Oracle Integration for Price Validation

To maintain accurate valuation of the swapped collateral, Caér utilizes Chainlink Oracles. These oracles deliver tamper-proof, real-time price feeds for all supported tokens, ensuring that each swap maintains alignment with market value. This is critical for maintaining healthy collateralization ratios and reducing systemic risk across lending positions.

4. Incentivization through Fees

Each swap transaction incurs a small liquidity fee, which is distributed among active LPs based on their share of the pool. This fee structure incentivizes continued liquidity provision and supports the long-term sustainability of the swap module.