What lenders should know before lending a stock

Lending a stock on Borro takes one transaction, and it is worth understanding first. This is the whole of it, in the order a lender should ask.

Where the rent comes from. When you deposit a stock token, it goes into that stock's vault and you hold shares of the vault. The vault lends the stock to short sellers through one Morpho Blue market. A shorter borrows your stock, sells it, and pays interest for as long as the loan is open. That interest is the rent. Its rate is set by Morpho's rate model from how much of the vault is on loan: more demand, higher rent. Nobody sets it by hand and nothing is promised. If nobody is shorting a stock, its lenders earn nothing that day. Borro keeps 10% of the rent, taken from the rent only and never from what you lent. There is no management fee.

Where the $BORRO Drip comes from. $BORRO is a coin launched on Pons. 50,000,000 of it sits in a contract called BorroDrip that lets it out on a fixed schedule over 104 weeks, halving every 26 weeks. Each day's share goes to depositors, 60% to stock lenders and 40% to USDG lenders, by the dollar value of what they hold, with a multiplier that grows from 1x to 3x over 90 days of staying in. A day's reward vests over 30 days, and withdrawing forfeits the part still vesting. The rates shown in the app include it, counted from the last seven days of actual payments. Two things to hold onto: the Drip is a reward, not a share in anything, and $BORRO can be worth nothing.

What protects you. Your shares sit in a Morpho Vault V2 in your own wallet. Borro never holds them. A shorter must post USDG worth more than the stock they borrow: the stock can be at most 62.5% of what they post, or 77% for SPY and QQQ. If the stock rises toward that limit, the position is closed by Borro's liquidator or by anyone else, and your stock is bought back and returned to the vault. Each stock's market is isolated from every other, and each market has a cap sized from the depth of the stock's pool, so a liquidation is something the pool can clear. Any change that could hurt you waits three days in public, and the owner, a multi-signature wallet, cannot move your shares.

The risks. First, waiting. You can withdraw whatever is on the shelf at any time. Stock on loan comes back only when the short closes or is closed, so when a vault is fully lent a withdrawal waits. Second, bad debt. If the price jumps past a short's limit before it can be closed, over a weekend for instance, the shorter can owe more than they hold. Morpho writes that shortfall off against the vault, and every share in it is worth a little less. Third, the contracts. Borro's own contracts are reviewed and tested and not yet audited by an outside firm, and Morpho, Chainlink, the pools and the chain can fail too. Fourth, the token. Its issuer can pause or restrict it, and its price on a pool can differ from the share's. And the Drip's $BORRO can fall to nothing.

What you can verify. Every vault is a verified contract on Blockscout. Its address is on the Rules page and in the app's Verify tab, which checks each market's settings against the chain in your own browser. The caps, the burns, the Drip's ledger and the weekend band are public files: /caps.json, /burns.json, /drip.json and /weekend.json. The source is at github.com/Borro-Markets/contracts. Nothing in this note is advice. Read it, check it, and lend only what you are prepared to leave on loan for a while.