Overnight Repo Markets
Overnight repo markets adjust terms every day based on current settlement values, funding costs, and liquidity needs. This creates a transparent, market driven financing layer for illiquid tokenized assets.
Traditional NAV lenders lock in terms for months or quarters. RAVA reprices daily. This makes lending safer and more efficient.
How Overnight Repo Works
A borrower posts tokenized asset collateral valued using RAVA settlement values. The protocol lends against that collateral overnight. Every day, four things update automatically:
Repo Rate Reflects current funding costs Adjusts with base rate changes Responds to collateral risk signals
Haircut Calculated from settlement value discount [S + D(t)] Static component S reflects structural risk Dynamic component D(t) responds to market stress Decreases when conditions stabilize
Margin Call Threshold Triggered if settlement value falls below required level No discretion, purely mechanical Transparent to all participants
Rollover Decision Borrower can repay or roll daily Lender can refuse rollover if risk exceeds limits Creates natural market discipline
Daily Adjustment Mechanism
Every day at a fixed time, the protocol recalculates all repo terms:
Step 1: Update Settlement Values
V_settlement(t) = NAV(t) × (1 − [S + D(t)])
Where: S is the static discount (structural factors, locked) D(t) is the dynamic adjustment (market factors, hedgeable)
Settlement values change as dynamic market signals update, even if NAV and static factors remain unchanged.
Step 2: Calculate New Haircut
Haircut(t) = Base_Haircut + [S + D(t)] + Liquidity_Premium(t)
Where S (static discount) reflects structural risk and D(t) (dynamic adjustment) reflects current market conditions. Higher total discount produces higher haircuts, reducing how much can be borrowed.
Step 3: Set New Repo Rate
Repo_Rate(t) = Risk_Free_Rate(t) + Credit_Spread(t) + Funding_Spread(t)
All three components are observable. No hidden pricing.
Step 4: Check Margin Requirements
If V_settlement(t) × (1 − Haircut(t)) < Loan_Amount, margin call triggers.
Borrower must add collateral or repay debt to restore required margin.
Why Daily Matters
Quarterly or monthly repricing creates dangerous lags. Settlement values can move significantly between pricing dates. Continuous repricing eliminates this gap.
Example:
A borrower has $100M collateral with 20% haircut, borrows $80M.
Credit spreads widen. Settlement value drops to $90M over 10 days.
Under Monthly Repricing: No action until month end Loan remains at $80M Effective LTV rises to 89% Lender takes uncompensated risk for weeks
Under Continuous Repricing: Haircut increases from 20% to 28% on day 2 Max loan drops to $65M Margin call on day 2 Borrower adds $15M collateral or repays $15M debt Risk contained immediately
Daily adjustment keeps actual risk aligned with stated risk limits at all times.
Policy Influence
Repo markets respond to monetary policy faster than traditional credit markets. When the Federal Reserve changes rates, overnight repo markets reprice within hours.
RAVA integrates this policy transmission into tokenized asset financing:
Base repo rates track observable risk free rates No discretionary rate setting Policy tightening flows through to borrowers automatically Policy easing reduces costs immediately
This connects previously isolated tokenized asset markets to the broader financial system in real time.
Market Transparency
Every participant sees the same inputs:
Settlement values published on chain Haircut formulas are public Repo rates derived from observable benchmarks Margin calls execute deterministically
No hidden models. No discretionary decisions. No information asymmetry.
This transparency allows borrowers to predict their costs, lenders to verify their risk, and protocols to integrate repo financing without trusting any intermediary.
Liquidity Without Fragility
Overnight repo creates liquidity without creating fragility. Borrowers can access funding daily. But lenders repriced risk daily. This prevents the slow accumulation of hidden leverage that causes credit crises.
Traditional NAV lending locks in terms for months. If conditions deteriorate, lenders cannot adjust until maturity. They either extend under bad terms or force liquidation.
Overnight repo adjusts continuously. Risk never drifts far from fair pricing. Both sides maintain optionality. The system stays balanced.
Integration with Settlement Layer
Overnight repo depends entirely on live settlement values. Without continuous, trustworthy valuation, continuous repricing would be impossible.
RAVA settlement values provide the foundation:
Update as market conditions change Reflect real liquidation dynamics Conservative enough to protect lenders Transparent enough to verify
Repo markets consume these values and translate them into financing terms. This vertical integration makes the entire stack safe and composable.