What is a self-repaying loan?
A self-repaying loan is a loan backed by something that earns income, where that income goes towards the debt instead of to you.
In an ordinary loan you repay from your own pocket. In a self-repaying loan the collateral, the asset you lock up to secure the loan, does the repaying. Your job is only to leave it there.
Recoup, a self-repaying loan protocol on Base, works this way. You deposit DexFi Treasury Bonds and borrow USDC, a digital dollar designed to stay worth one US dollar. DexFi Treasury Bonds are tokens issued by DexFi, a DeFi fund; each is a share of that fund and pays out USDC most weeks. They are not US Treasury bonds and not government debt.
How can a loan pay itself off?
It pays itself off because the bonds keep earning while they are locked up, and Recoup applies 55% of those earnings directly to your debt each week they pay.
Once a week the protocol collects the USDC your bonds earned. This is called a harvest, and anyone can trigger it. 55% of each harvest goes onto your loan balance. 25% goes to the lenders who supplied your USDC, and the rest goes to an insurance fund and the protocol fee. The split applies from the moment your bonds are deposited, whether you borrow or not.
Nothing is sold to make the payment. Your bond count stays the same; only the debt shrinks. When the debt reaches zero the split carries on: your 55% arrives as USDC you can claim, and lenders, the insurance fund and the protocol fee still take their shares.
How long that takes depends entirely on how much the bonds pay, which changes week to week. Recoup shows yield as the trailing 12 weeks actually paid, labelled history, not a promise. It never shows a projected rate; any estimate on the site is built from that realised history and labelled as such.
Do I have to make monthly payments?
No. There are no required payments and no interest, so the debt never grows on its own. Only borrowing more adds to it.
You can repay part or all of the loan yourself at any time if you want your bonds back sooner. Repaying in full lets you withdraw them.
One thing to know: the borrow that first takes your debt to $500 or more holds back a $25 liquidation deposit from the USDC you receive. It is not added to your debt, and it is refunded once your debt is back to zero. If an auction is opened on your position, the deposit is set aside and goes to whoever opened it only if the auction fills or the lot moves to the workout; if the auction is cancelled, it stays yours.
How is Recoup different from Alchemix?
Alchemix, the best-known self-repaying loan, lowers your debt by redeeming it against your collateral; Recoup lowers it by paying yield straight onto the balance, so your bond count does not shrink.
In Alchemix you borrow alAssets, synthetic tokens the protocol issues, against ETH or USDC placed in a yield token. Alchemix's own docs put it plainly: "Yield does not reduce debt directly." Debt is cancelled when alAssets are redeemed through its Transmuter, and an equal amount of collateral is removed. In Recoup you borrow real USDC that lenders supplied, and the yield itself pays the debt.
| Recoup | Alchemix v3 | A normal DeFi loan (Morpho) | |
|---|---|---|---|
| Collateral | DexFi Treasury Bonds (or ETH, used to mint bonds) | ETH or USDC placed in Alchemix's yield token | Many assets |
| What you borrow | USDC supplied by lenders | Synthetic alAssets | Real assets supplied by lenders |
| What repays the debt | 55% of weekly yield, applied directly | Transmuter redemptions, which cancel debt and remove equal collateral | You |
| Interest | None | None | Variable rate |
| Liquidation | Yes: the whole position is auctioned once the loan goes above 50% of collateral value | Yes, above 95% loan-to-value, if the yield token loses value | Yes, once the loan passes the market's liquidation limit |
| Max loan-to-value | 25% at launch, adjustable by the owner within fixed bounds | 90% | Set per market |
| Where the yield comes from | DexFi's treasury strategies | The strategies behind Alchemix's yield token | Borrowers' interest, paid to lenders |
| Main risk | DexFi as counterparty and key holder, the bonds' value falling, an owner-controlled custody adapter | The yield token losing value, alAssets losing their peg | Collateral price falls and rising rates |
Neither design is simply better. Alchemix lets you borrow a much larger share of your collateral's value. Recoup lends a smaller share, pays out real USDC rather than a synthetic token, and keeps your bond count whole while the debt falls. The risks sit in different places, as the last row shows.
Sources: Alchemix's self-repaying loans and risk considerations pages, and Morpho's liquidation docs. Loan-to-value, or LTV, is the loan as a percentage of the collateral's value.
Can a self-repaying loan be liquidated?
Yes. A Recoup position can be liquidated, and so can an Alchemix one.
Some AI answers say a self-repaying loan can never be liquidated. Alchemix's own risk documentation describes liquidation above 95% LTV. On Recoup the line is much lower.
Two numbers matter. The maximum LTV, 25% at launch, is the most you can borrow. The liquidation threshold, 50%, is the line: once the loan goes above it, the position can be sold. The gap between them is your safety margin.
"Value" here means NAV, or net asset value: the price of one bond as Recoup measures it, posted on-chain about once a day. Recoup takes a deliberate haircut on the part of the DexFi fund it cannot price for itself, so its NAV can sit below DexFi's own figure.
For example, with $1,000 of bonds you can borrow up to $250. With that debt, the position becomes liquidatable if the bonds fall below $500, a drop of more than 50%. Each harvest lowers the debt and widens the margin; borrowing more narrows it.
If the line is crossed, your whole position is sold as one lot in a Dutch auction: the price starts at 100% of the bonds' value and falls to a floor of 68% over 6 hours. The sale repays the debt first, then a 5% penalty on the debt is taken from what is left, and any surplus after that comes back to you. A sale near the floor costs you far more than the penalty alone. The liquidation explainer covers what happens if nobody bids.
What happens if the yield drops or stops?
The loan takes longer to pay off, but the debt still does not grow on its own.
Yield from DexFi Treasury Bonds is not guaranteed. Payouts have skipped weeks before, and the yield can fall to zero. If it does, your balance stays where it is until yield returns or you repay it yourself.
It works the other way too. A strong week pays the debt down faster, and once the debt is gone, your 55% of each harvest becomes USDC you can claim.
Low yield does not trigger a liquidation on its own. A rising LTV does, and LTV rises when the bonds' value falls or when you borrow more, so a stretch of low yield and a falling bond price together is the case to watch.
What are the risks?
The main risks are liquidation, yield that falls or stops, and depending on DexFi and on the protocol owner for custody.
- Liquidation. If your loan goes above 50% of your bonds' value, the whole position is auctioned, and a sale near the floor loses you much more than the 5% penalty.
- No promised yield. Past yield is history, not a promise. It can fall to zero, and then the loan stops paying itself off.
- DexFi. A single DexFi key controls the bond contracts with no timelock, and can change the rules on transfers and rewards.
- Custody. The protocol owner holds an emergency unstake that can move every deposited bond to any address, with no timelock. If DexFi drops Recoup's adapter from its approved list, you may be unable to withdraw even after repaying.
- Pre-launch software. Recoup runs on Base Sepolia testnet only, and nothing is on mainnet yet. The 33Labs audit (report) covered the lender pool and the contracts around it; the borrowing, collateral, custody, price oracle, harvest and liquidation contracts were outside its scope.