---
title: "Root Finance"
path: "/ecosystem/root-finance"
bannerImage: "https://j9ytchrzkvqpcul7.public.blob.vercel-storage.com/7cfc43d3-2c08-4af0-b65b-17e3bf0c5da4.avif"
version: "2.0.0"
author: "ShardSpace Admin"
createdAt: "2026-02-06T16:07:56.840Z"
updatedAt: "2026-03-28T15:24:29.014Z"
---

# Root Finance

**Root Finance** is a [decentralized Lending & Borrowing protocol](https://docs.rootfinance.xyz/) operating on Radix. The platform enables users to participate as either depositors or borrowers within an overcollateralized market environment. As a non-custodial liquidity protocol, Root Finance allows lenders to earn passive income by providing liquidity to the market, while borrowers can obtain funds in an overcollateralized manner.

[https://youtu.be/ED-e6Wpo01w](https://youtu.be/ED-e6Wpo01w)

## Key Features

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Root Finance aims to provide a user-centric platform for the Radix community, enhancing capital strategies through a simple yet comprehensive Lending & Borrowing Decentralized Application (Dapp). The protocol has undergone [security audits](https://triwei.io/reports/root-finance-report.pdf) to ensure the integrity and safety of the system, with its smart contracts being open-source and publicly available for review.

## Protocol Overview

Root Finance is a decentralized money market protocol that operates on the Radix DLT. The protocol facilitates lending and borrowing of cryptocurrencies within an overcollateralized environment. This section provides an overview of the core functionality, supported assets, and unique features of the Root Finance protocol.

### Core Functionality

The Root Finance protocol centers around two primary functions:

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The protocol utilizes smart contracts to manage these functions, ensuring that all operations are transparent, secure, and automated.

### Supported Assets

Root Finance supports a variety of cryptocurrencies for both lending and borrowing. As of the latest documentation, the supported assets include:

**For Supply (Lending):**

- $WBTC (Wrapped Bitcoin)

- $ETH (Ethereum)

- $XRD (Radix)

- $USDC (USD Coin)

- $USDT (Tether)

- $HUG

- $LSULP (upcoming)

**For Borrowing:**

- $WBTC

- $ETH

- $XRD

- $USDC

- $USDT

- $LSULP (upcoming)

Each asset has specific [parameters](https://docs.rootfinance.xyz/tecnical-guide/money-market-parameters) such as maximum Loan to Value (LTV) ratios and Liquidation Thresholds, which govern how they can be used within the protocol.

### Root Receipts

When users supply assets to the Root Finance protocol, they receive [Root Receipts in return](https://docs.rootfinance.xyz/user-guide/supply-lend). These receipts (e.g., $rtxETH for Ethereum, $rtxUSDC for USD Coin) represent the user's right to redeem their supplied assets in the future.

Key features of Root Receipts include:

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### Interest Rate Model

Root Finance employs a [dynamic interest rate model](https://docs.rootfinance.xyz/tecnical-guide/interest-rate-model-of-root-finance) that adjusts based on the utilization rate of assets in the pool. This model aims to balance liquidity risk and maximize utilization:

- When capital is plentiful (low utilization), interest rates are set low to encourage borrowing.

- When capital is scarce (high utilization), interest rates increase to incentivize repayments and additional deposits.

The interest rate curve is segmented into two phases around an optimal utilization rate, with a steeper increase in rates beyond this optimal point to manage liquidity risk.

### Liquidation Mechanism

To maintain the protocol's solvency and protect lenders, Root Finance implements a [liquidation mechanism](https://docs.rootfinance.xyz/liquidations). Liquidations occur when an account's collateral value decreases or the borrowed amount increases relative to the collateral, causing the loan-to-value (LTV) ratio to meet or exceed the liquidation threshold.

During a liquidation:

- Up to 40% of the loan value can be liquidated.

- Liquidators receive an incentive, which includes an 8% liquidation fee.

- The liquidation process aims to restore the loan to a healthy level of collateralization.

This mechanism ensures that the protocol remains solvent and can continue to function even in volatile market conditions.

## Key Features

Root Finance offers several key features that distinguish it in the decentralized finance (DeFi) ecosystem. These features are designed to provide a secure, efficient, and user-friendly platform for lending and borrowing cryptocurrencies.

### Non-custodial Design

Root Finance is designed as a [non-custodial platform](https://docs.rootfinance.xyz/tecnical-guide/security), which means that users retain control of their assets at all times. Key aspects of this non-custodial design include:

- Users' assets are secured within immutable smart contracts.

- There's no need for intermediaries or custodial control.

- The smart contracts are open-source and publicly available for review, adhering to the principle of "don't trust, verify."

This design enhances security and aligns with the decentralized ethos of blockchain technology.

### Decentralized Governance

While the documentation doesn't explicitly mention a governance system, the protocol operates on the [Radix DLT](https://docs.rootfinance.xyz/), which suggests a degree of decentralization in its operation. The specific governance mechanisms, if any, are not detailed in the provided documents.

### Interest Rate Model

Root Finance implements a [sophisticated interest rate model](https://docs.rootfinance.xyz/tecnical-guide/interest-rate-model-of-root-finance) designed to balance liquidity risk and maximize utilization. Key features of this model include:

- Dynamic adjustment based on the Utilization Rate (U) of the asset pool.

- A two-phase interest rate curve centered around an optimal utilization rate (Uoptimal).

- Gradual rate increase up to Uoptimal, followed by a significant increase beyond this point.

- Separate formulas for calculating borrow rates and deposit rates.

This model aims to incentivize optimal capital allocation within the protocol.

### Liquidation Mechanism

To maintain the protocol's solvency, Root Finance employs a [liquidation mechanism](https://docs.rootfinance.xyz/liquidations). Key aspects of this mechanism include:

- Liquidations are triggered when an account's loan-to-value (LTV) ratio meets or exceeds the liquidation threshold.

- Up to 40% of the loan value can be liquidated in a single event.

- Liquidators receive an incentive, including an 8% liquidation fee.

- The process aims to restore loans to healthy collateralization levels.

This mechanism helps protect lenders and maintain the overall health of the protocol.

### Flash Loans

Root Finance offers a flash loan feature, as evidenced by the [security audit report](https://triwei.io/reports/root-finance-report.pdf). Flash loans allow users to borrow assets without collateral, provided the loan is repaid within the same transaction. Key points about flash loans:

- They enable complex DeFi operations and arbitrage opportunities.

- The audit identified a critical vulnerability in the flash loan mechanism, which was subsequently fixed.

- The implementation details and current status of flash loans are not fully described in the provided documentation.

### Security Measures

Root Finance places a strong emphasis on security, as evidenced by several measures:

- The protocol has undergone [rigorous audits](https://docs.rootfinance.xyz/tecnical-guide/security) by reputable third-party firms.

- Smart contracts are [open-source and publicly available](https://docs.rootfinance.xyz/tecnical-guide/security) for community review.

- The team adheres to best practices in blockchain industry development.

### Root Points System

Root Finance implements a [Root Points system](https://docs.rootfinance.xyz/root-points/rules) to incentivize user engagement. Key features of this system include:

- Users earn points for interacting with the platform, such as supplying or borrowing assets.

- Additional points can be earned through specific quests, like following Root Finance on social media.

- A referral program allows users to earn bonus points.

- Points are calculated based on the value of assets supplied or borrowed, with different rates for different assets.

- A leaderboard displays top wallets based on their Root Points.

This system adds a gamification element to the protocol, potentially increasing user engagement and retention.

## Technical Details

Root Finance is built on a complex technical infrastructure designed to ensure security, efficiency, and functionality. This section delves into the technical aspects of the protocol, including its smart contracts, security measures, and integration with the Radix DLT.

### Smart Contracts

Root Finance's core functionality is implemented through a series of smart contracts. The main components, as identified in the [audit report](https://triwei.io/reports/root-finance-report.pdf), include:

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Key smart contract files and their functions include:

- `lending_market.rs`: Implements the main lending market functionalities.

- `resources.rs`: Defines the resources used in the system.

- `modules/cdp_data.rs`: Manages Collateralized Debt Position (CDP) data.

- `modules/cdp_health_checker.rs`: Checks the health of CDPs.

- `modules/interest_strategy.rs`: Implements the interest rate strategy.

- `modules/liquidation_threshold.rs`: Defines liquidation thresholds.

- `modules/pool_config.rs`: Configures individual asset pools.

- `modules/pool_state.rs`: Manages the state of asset pools.

These contracts are written in Scrypto, a programming language designed for the Radix DLT.

### Security Measures

Root Finance implements several security measures to protect user funds and ensure the integrity of the system:

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### Audits and Vulnerabilities

An [independent security audit](https://triwei.io/reports/root-finance-report.pdf) of Root Finance identified several issues:

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These issues were addressed or mitigated following the audit.

## User Interaction

Root Finance provides a platform for users to engage in lending and borrowing activities. This section details the primary ways users can interact with the protocol, including supplying assets, borrowing, repaying loans, and the liquidation process.

### Supplying Assets

Users can supply their assets to Root Finance to become liquidity providers. The process works as follows:

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### Borrowing

Root Finance allows users to borrow assets by using their supplied assets as collateral. The borrowing process involves:

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### Repaying Loans

Users can repay their borrowed funds at any time using the "Repay" feature. The repayment process includes:

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### Liquidations

Liquidations are a crucial part of the Root Finance protocol, ensuring its overall solvency. The liquidation process works as follows:

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Users are encouraged to actively manage their positions, monitor market conditions, and maintain healthy LTV ratios to avoid liquidation events.

## Root Points System

The Root Points system is an incentive mechanism designed by Root Finance to reward users for interacting with the platform. This system encourages user engagement and loyalty by offering points for various activities within the protocol.

### Earning Mechanisms

Users can [earn Root Points](https://docs.rootfinance.xyz/root-points/rules) through several methods:

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The accumulation of points is based on snapshots of user positions taken at random times throughout each 24-hour period.

### Quests and Bonuses

Root Finance offers several [quests and bonuses](https://docs.rootfinance.xyz/root-points/rules) for users to earn additional Root Points:

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### Point Calculation

The number of Root Points earned depends on the type and amount of assets supplied or borrowed:

- **Supply Bonus:**
[For every $100 worth of $XRD, $WBTC, $ETH and $LSU](https://docs.rootfinance.xyz/root-points/rules): 1 Root Point every 24 hours

- [For every $100 worth of $USDC and $USDT](https://docs.rootfinance.xyz/root-points/rules): 2 Root Points every 24 hours

- [For every $100 worth of $HUG](https://docs.rootfinance.xyz/root-points/rules): 3 Root Points every 24 hours

**Borrow Bonus:**
- [For every $100 worth of $USDC, $USDT, $XRD, $WBTC, $ETH and $LSU](https://docs.rootfinance.xyz/root-points/rules): 3 Root Points every 24 hours

### Verification Process

To ensure fair distribution of points, Root Finance employs a [verification process](https://docs.rootfinance.xyz/root-points/rules):

- Snapshots of users' positions are taken at random intervals throughout the 24-hour period.

- Assets must remain in place during the day to ensure eligibility for the points earned.

- If a user's balance changes or falls below the required threshold, their points for that day may be affected.

### Leaderboard

Root Finance maintains a [leaderboard](https://docs.rootfinance.xyz/root-points/rules) that displays the top wallets based on their Root Points. This feature adds a competitive element to the points system, potentially driving further engagement with the platform.

### Future Utility

While the current documentation doesn't specify the future utility of Root Points, such point systems in DeFi protocols are often used for:

- Governance participation

- Access to exclusive features or products

- Discounts on protocol fees

- Potential token airdrops

However, it's important to note that these are speculative uses and not confirmed features of the Root Points system.

## Risks and Challenges

As with any decentralized finance (DeFi) protocol, Root Finance faces various risks and challenges. Understanding these is crucial for users, developers, and stakeholders involved with the platform.

### Smart Contract Risks

Smart contract vulnerabilities pose significant risks to DeFi protocols. For Root Finance, several issues were identified in a [security audit](https://triwei.io/reports/root-finance-report.pdf):

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While these issues were addressed or mitigated following the audit, the existence of such vulnerabilities highlights the ongoing challenge of maintaining secure smart contracts.

### Market Risks

Market risks are inherent to any financial system, particularly in the volatile cryptocurrency market:

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### Operational Risks

Several operational risks were identified or can be inferred from the provided documentation:

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### Regulatory Challenges

While not explicitly mentioned in the provided documentation, DeFi protocols like Root Finance often face regulatory challenges:

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It's important to note that the specific regulatory challenges faced by Root Finance are not detailed in the provided documentation, and the actual impact of regulations may vary depending on the jurisdictions involved and the evolving regulatory landscape.