Surf V2 Public Testnet Overview
Welcome to the Surf V2 overview
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Surf V2 introduces a major upgrade to the protocol's lending system. The update improves capital efficiency, borrower flexibility, and lender incentives while making position management significantly more flexible.
The core upgrades include:
• Dynamic interest rates • Partial loan repayments • Enhanced position management • Multi-collateral borrowing • Time-based lender rewards
These features work together to create a lending system that is more flexible, more capital efficient, and more attractive for both borrowers and liquidity providers.
Dynamic Interest Rates
Overview
Surf V2 introduces dynamic interest rates that automatically adjust based on pool utilization.
Instead of using a fixed interest rate, borrowing costs now move depending on how much liquidity is available in a lending pool.
The borrowing rate is shared across the whole pool, meaning all active loans in that market move with the same rate. As utilization changes, the borrow rate updates for all borrowers, and lender yields adjust as well.
When borrowing demand is high and available liquidity becomes scarce, interest rates increase. When liquidity is abundant and borrowing demand is lower, rates decrease.
How It Works
Each lending market has a utilization rate. This determines the interest rate for the pool.
Utilization Rate = Borrowed Liquidity / Total Liquidity
Surf V2 uses a jump rate model. As utilization rises, interest rates increase. Once utilization passes a certain point, rates rise much faster. This helps prevent pools from becoming fully drained and encourages more liquidity to enter when it is needed most. In simple terms: Low utilization Borrowing is cheaper, which encourages demand.
Moderate utilization Rates rise gradually to balance borrowers and lenders.
High utilization Rates rise more quickly to discourage excessive borrowing and attract additional liquidity.
Why This Is Important
Dynamic rates make Surf’s lending markets more efficient, more competitive, and better balanced.
Benefits include:
• Fairer pricing across the pool At any given time, all borrowers in the same pool pay the same rate. This avoids a situation where early borrowers lock in very low rates while later borrowers are forced to pay much more.
• Better capital efficiency Liquidity is priced according to actual demand.
• Higher yields for lenders during periods of high demand When utilization rises, lender returns rise as well.
• Lower borrowing costs when liquidity is abundant When pools have excess liquidity, borrowers benefit from cheaper loans.
• More competitive markets Because rates automatically respond to supply and demand, Surf can stay more competitive across changing market conditions, especially in markets like stablecoins, where borrowers are highly sensitive to interest rates.
This helps Surf create deeper, more efficient markets for both borrowers and lenders.
Partial Loan Repayments
Overview
Surf V2 allows borrowers to repay portions of their loan instead of requiring the entire debt to be repaid at once.
This gives borrowers much greater flexibility in managing their debt and risk.
How It Works
Borrowers can repay any portion of their outstanding debt at any time. This could mean repaying part of the principal, or simply repaying the interest that has built up so far.
When a repayment is made:
• The outstanding loan balance decreases • The health of the loan improves • The risk of liquidation decreases
This can be done multiple times throughout the life of a loan.
Why This Is Important
Partial repayments allow borrowers to actively manage their positions instead of being forced into an all-or-nothing decision.
Benefits include:
• Reduced liquidation risk • Improved capital efficiency • More flexible leverage management • Better control over borrowing costs
Borrowers can now gradually reduce debt as profits are realized or market conditions change.
Enhanced Position Management
Overview
Surf V2 introduces improved tools for managing borrowing positions.
Borrowers can now actively adjust their collateral and debt positions without needing to close and reopen loans.
How It Works
Users can perform several actions directly within an existing position:
Add collateral Users can add additional collateral to strengthen their position and reduce liquidation risk.
Remove collateral Collateral can be withdrawn as long as the position remains safely collateralized.
Repay debt Borrowers can repay part or all of their outstanding loan.
Borrow more If sufficient collateral exists, users can increase their borrowing amount.
These actions can also be combined in a single update to the position.
For example, a user could:
• Add collateral and repay some debt to make the position safer • Remove some collateral while borrowing more, as long as the position remains healthy • Add collateral while also increasing the loan amount
This allows borrowers to manage positions much more precisely as market conditions change.
Why This Is Important
This flexibility significantly improves the borrowing experience.
Instead of closing a loan and opening a new one, users can update an existing position to match their needs.
Benefits include:
• More flexible position management • Lower transaction costs • Faster position adjustments • Reduced liquidation risk
Time-Based Lender Rewards
Overview
Surf V2 introduces time-based rewards for liquidity providers.
In Surf V1, most lender yield is only realized when certain events happen, such as loan repayments, liquidations, opening fees, or Cardano staking rewards. This leads to unpredictable, jumpy rewards for lenders.
Surf V2 improves this by making the core interest earned from borrowing accrue over time, even before a borrower repays. It also makes rewards fairer, since someone supplying liquidity shortly before a repayment should not benefit the same as someone who has been in the pool much longer.
How It Works
In V2, pool interest is updated regularly based on time, utilization, and the current borrow rate.
This means supply positions continue earning as time passes, even if no borrower has repaid yet.
As interest accrues, the value of LP shares increases over time rather than only increasing when repayments happen.
However, some parts of lender profit are still event-based. This includes things like:
• Liquidation profits • Cardano staking rewards payouts
These are added separately when they happen. If a lender withdraws before those events occur, they would miss out on that part of the rewards.
Why This Is Important
Time-based lender rewards make yield smoother and more predictable.
Benefits include:
• Lenders earn over time instead of waiting for repayments • Yield becomes more consistent and easier to understand • The lending experience becomes more attractive for LPs • Pools become less dependent on loan closures to show returns
This creates a better balance: core lending yield becomes time-based, while extra profit sources like liquidations and staking remain event-based.
Multi-Collateral Pools
Overview
Surf V2 introduces multi-collateral pools.
This means borrowers can use more than one token as collateral for the same loan. For example, instead of borrowing ADA using only SNEK, a user could borrow ADA using a mix of SNEK, SURF, and STRIKE.
This gives borrowers more flexibility and makes it easier to build positions using the assets they already hold.
How It Works
When opening a loan, the borrower enters the amount they want to borrow and provides the collateral for that position in the same transaction.
In a multi-collateral pool, that collateral can be made up of several supported assets.
For example, a user borrowing ADA could provide a mix of:
• SNEK • SURF • STRIKE
The protocol values each collateral asset and combines them to determine the overall strength of the collateral position.
This means the loan health is based on the full collateral mix, rather than just one token.
Why This Is Important
Multi-collateral pools make borrowing more flexible and more practical.
Benefits include:
• More choice in how borrowers build their collateral position • Fewer separate borrow positions may be needed • Better use of assets users already hold • More concentrated liquidity for suppliers, instead of spreading it across several smaller pools
This can also make positions safer, since borrowers are not relying on just one asset to support the loan.
Overall, multi-collateral pools help make Surf more flexible while unlocking more utility for Cardano native tokens.
Summary
Surf V2 brings several major improvements to the protocol’s lending system.
It introduces dynamic interest rates, more flexible loan management, and improved rewards for liquidity providers.
Key improvements include:
• Dynamic interest rates that respond to supply and demand • Partial repayments for more flexible debt management • Better tools for managing positions • Multi-collateral borrowing for greater capital efficiency • Time-based rewards that better reward long-term liquidity
Together, these changes make Surf a more flexible, capital-efficient, and competitive lending protocol for both borrowers and lenders, especially in markets like stablecoins, where pricing and efficiency matter most.
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