Reserve Loans

Reserve Loans are a core financial primitive introduced by Polaris, enabling users to borrow ETH directly from the bonding curve reserve using fpETH as collateral.

As described in the fpETH section, fpETH represents the steadily growing floor component of pETH.

Since the fpETH price in ETH is guaranteed to only increase, changes in the ETH price cannot cause the position to become undercollateralized. This removes the need for liquidations and makes it possible for users to borrow up to 100% of the floor value represented by their fpETH.

With this feature, borrowers gain ETH liquidity without giving up fpETH yield, making highly capital-efficient looping strategies possible.

Loan Mechanics

Instead of paying a conventional borrowing interest rate, reserve loans apply a time-weighted performance fee, which is deducted directly from the increase in the fpETH floor price over the lifetime of the loan.

This helps users benefit from the growth of the fpETH floor while passively paying for the extra liquidity they access. The fee is applied when the user next touches the position, such as when they borrow additional ETH, repay, or close the loan.

For example, suppose a user deposits 1 fpETH when the floor value is 1 ETH and borrows 1 ETH against it. Later, the fpETH floor has risen to 1.2 ETH, creating 0.2 ETH of additional floor value. If the performance fee is 1%, the user can access 0.198 ETH of that gain, while 0.002 ETH is paid as the fee.

The performance fee is also utilization-based. As more ETH is borrowed through Reserve Loans, utilization of the bonding curve reserve increases and the fee rises. When utilization is lower, the fee can be lower.

As described in the dedicated Fee Router section, the fees generated by Reserve Loans are recycled back into the Polaris ecosystem, becoming part of the value distributed throughout the protocol.