Surplus & the agreed rate
The single most-asked question about these loans. Short version: there is no oracle and no market gain — “surplus” is simply the collateral you pledged beyond what you borrowed at the rate you both agreed and froze on day one.
When a deadline is missed
Where does the “surplus” come from?
Forget price feeds. A loan here is just two tokens swapped at a rate you both agree — say 1 fpETH = 500 fpUSD — plus a flat fee. Every figure is fixed when the loan is created, so a default's outcome is known on day one. “Surplus” isn't a market gain: it's simply collateral you pledged beyond what you borrowed at that agreed rate. So it depends entirely on how much you pledge:
Borrow the full value (repo-style)
≈ no surplusYou borrowed almost the full value of the pledge (1500 fpUSD ≥ 1500 fpUSD at the agreed rate), so there's nothing left over — default simply completes the swap.
Borrow less than the value (pawn-style)
surplus existsThe lender takes just enough to cover the 518 fpUSD debt at the agreed rate: 518 ÷ 500 = 1.04 fpETH. The other 1.96 fpETH was pledged on top of what you borrowed, so it goes back.
Borrow right up to the collateral's agreed value and there's nothing extra — default just completes the swap. Pledge more than you borrow and a surplus appears; the only question is who keeps it. Leave the agreed rate unset for a plain pledge (lender keeps everything); set it and the borrower reclaims the over-pledge. It's opt-in per offer — and the same switch that makes a loan Lorrow-compatible.
Why bother, and who wins
Case studies: the agreed rate is the whole story
Since nothing on-chain floats, the only thing that can change is the real market rate during the term. Here's why someone picks each setting, and who comes out ahead when that rate drifts from the one they agreed.
Keep your ETH, get quick cash
You only need a little liquidity and you fully intend to repay. You pledge a chunky asset but borrow far less than it's worth. Surplus return means a missed deadline costs you only what you borrowed — not the whole bag.
pledge > loan · surplus matters
Sell now, buy it back later
A repo-style deal: you borrow almost the full agreed value of the collateral. If you don't repay, default simply completes the swap at the rate you agreed — there's little or no surplus either way.
loan ≈ value · ~no surplus
Lender wants a cushion
The lender sets the agreed rate conservatively (or leaves surplus return off). A lower agreed rate hands them more collateral on default, so they stay covered even if the market rate slips before they can sell.
conservative rate · lender-protected
Who wins if the market rate moves?
Same loan throughout, surplus-return mode: borrow 500 fpUSD + 18 fee against 3 fpETH, agreed rate 1 fpETH = 500 fpUSD. The contract never reads a price — but the borrower will, when deciding whether to repay.
| Market rate at the deadline | Borrower's smart move | Lender ends up with | Borrower ends up with |
|---|---|---|---|
| 1 fpETH = 300 fpUSD (fell) | Walk away — the pledge is now worth less than repaying | Takes 1.04 fpETH ≈ 311 fpUSD — short of the 518 owed | Keeps 1.96 fpETH (≈ 589) + the 500 borrowed |
| 1 fpETH = 500 fpUSD (the agreed rate) | Indifferent — repaying and defaulting are worth the same | Made whole — 518 fpUSD either way | Fairly settled — keeps exactly the surplus |
| 1 fpETH = 700 fpUSD (rose) | Repay — the pledge is worth more than the debt | Gets 518 fpUSD (principal + fee) — just the fee as profit | Redeems 3 fpETH (≈ 2 100) for 518 — keeps the upside |
The agreed rate is the lender's break-even
In surplus mode the borrower repays only when the market rate sits above the agreed rate, and walks when it sits below — so the agreed rate is exactly the line between the two. Above it, the lender just earns the fee; below it, they absorb the shortfall, because they handed the surplus back instead of keeping it. That's the cost of treating the borrower fairly.
In a plain pledge (surplus return off), the over-pledge itself is the cushion: at 1 fpETH = 300 the borrower still repays (their 3 fpETH are worth 900, more than the 518 debt), so the lender is made whole. The trade-off is blunt — fair to the borrower, or protective of the lender. Pick per offer; set a conservative agreed rate to lean toward the lender while still returning genuine surplus.
Want to try your own numbers? The scenario calculator lets you drag the principal, pledge, fee, agreed rate and market rate and watch the split — and the repay-vs-default decision — update live.