RECOUP.LAUNCH APP
LEARN · 7 FIGURES · 4 MIN

How a self-repaying loan works

A self-repaying loan is a loan whose collateral earns yield, and that yield is used to pay the loan down, so you never have to make a payment yourself. It can still be liquidated.

Last updated · Written by Recoup

CAN STILL BE LIQUIDATED
Illustrative: $1,000 of bonds at the oracle's post of 6 October 2026, $250 borrowed. The debt is projected at the trailing 12-week realised yield: history, not a promise.
TABLE VIEW
The example loan's debt, sampled
WeekDebt
0$250.00
8$206.41
17$176.81
25$142.37
34$103.63
42$69.19
51$30.44
59$0.00

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.

1 · THE IDEA
  1. You pay ETH
    Recoup mints DexFi Treasury Bonds with it, straight into its vault.
  2. USDC
    You borrow digital dollars
    Up to 25% of the bonds' value at launch.
  3. 55%
    The bonds' yield pays it back
    Applied to your debt each week they pay.
NOT U.S. TREASURIESThe bonds are shares in DexFi, a DeFi fund, and pay USDC most weeks. What DexFi is.
The bonds stay in the vault and keep earning; the loan is paid from what they earn.
MORE DETAIL

Recoup, a self-repaying loan protocol on Base, works this way. You mint DexFi Treasury Bonds with ETH through Recoup, they go straight into its vault, and you borrow USDC, a digital dollar. The bonds are shares in DexFi, a DeFi fund, and pay USDC most weeks; they are not US Treasury bonds. See what DexFi is.

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.

2 · THE LOOP
  1. 01
    Bonds earn USDC
    DexFi pays most weeks
  2. 02
    The harvest
    at least 5 days apart, anyone can trigger it
  3. 03
    55% onto your debt
    applied directly, nothing to claim
  4. 04
    Debt falls, bonds stay whole
    nothing is sold
Each harvest, round again. The split applies from the moment you deposit, borrowing or not.
3 · ONE WEEK'S HARVEST, SPLIT
  • 55% your loan
  • 25% lender pool
  • 10% insurance fund
  • 10% protocol fee
100100bonds before and after a harvest. Nothing is sold; only the debt shrinks.
$0Once the debt reaches zero, your 55% arrives as USDC you can claim. The other shares are still taken.
TABLE VIEW
Each harvest's split
ToShare
Your loan55%
Lender pool25%
Insurance fund10%
Protocol fee10%
Nothing is sold: the bond count stays the same and only the debt shrinks.
MORE DETAIL

The protocol collects the USDC your bonds earned. This is the harvest, and anyone can trigger it. It splits 55% to your loan, 25% to lenders, 10% to an insurance fund and 10% as the protocol fee. Nothing is sold: your bond count stays the same and only the debt shrinks.

The split applies from the moment you deposit, borrowing or not. Once the debt reaches zero, your 55% arrives as USDC you can claim, and the other shares are still taken.

How fast the debt falls depends on what the bonds pay, which changes week to week. Recoup shows only the trailing 12 weeks actually paid, labelled history, not a promise, and never a projected rate.

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. What the loan costs is yield: the 45% of every harvest that goes to lenders, insurance and the protocol fee, whether you borrow or not.

4 · NO SCHEDULE
THE LAST 12 WEEKS OF A $250 LOAN ON $1,000 OF BONDS
ILLUSTRATIVE · REAL PAYOUTS, 13 AUG TO 29 OCT
  1. 13 Aug-$3.24
  2. 20 Aug-$2.97
  3. 27 Aug-$5.23
  4. 3 Sept-$6.40
  5. 10 Sept-$10.52
  6. 17 Sept-$4.66
  7. 24 Sept-$5.15
  8. 1 Oct-$5.43
  9. 8 Oct-$2.59
  10. 15 Oct-$2.10
  11. 22 Oct-$1.71
  12. 29 Oct-$1.66provisional
What each week's payout took off the debt
PAYMENTS YOU MAKE
0
INTEREST
None
A SKIPPED WEEK
The balance stays put. It never grows.
$25The 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 is refunded when the debt is back to zero. What the deposit is for.
TABLE VIEW
Each week's payout per bond and the example loan's debt after it
Week ofPaid per bondOff the debtDebt after
2026-08-13$0.1757$3.24$246.76
2026-08-20$0.1607$2.97$243.79
2026-08-27$0.2833$5.23$238.56
2026-09-03$0.3467$6.40$232.16
2026-09-10$0.5698$10.52$221.64
2026-09-17$0.2522$4.66$216.98
2026-09-24$0.2787$5.15$211.84
2026-10-01$0.2942$5.43$206.41
2026-10-08$0.1405$2.59$203.81
2026-10-15$0.1140$2.10$201.71
2026-10-22$0.0926$1.71$200.00
2026-10-29 (provisional)$0.0900$1.66$198.34
The debt falls in the weeks the bonds pay and holds flat in a week they skip; it never grows on its own. None of these 12 weeks was skipped, but payouts have skipped weeks before.
MORE DETAIL

You can repay part or all of the loan yourself at any time. Repaying in full lets you withdraw your bonds.

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.

5 · THREE DESIGNS

SHAPE ONLY, NOT TO SCALE · THE FIGURES ARE THE COMPARISON TABLE'S

  • Recoup
    YIELD ONTO THE BALANCE
    Yield pays the debt; the bond count never shrinks.
    MAX LTV
    25% at launch
    LIQUIDATION
    above 50%
    INTEREST
    None
    YOU BORROW
    USDC from the lender pool
    MAIN RISK DexFi as counterparty and key holder, the bonds' value falling, an owner-controlled custody adapter
  • Alchemix v3
    REDEEMED AGAINST COLLATERAL
    Transmuter redemptions, which cancel debt and remove equal collateral
    MAX LTV
    90%
    LIQUIDATION
    above 95%
    INTEREST
    None
    YOU BORROW
    Synthetic alAssets
    MAIN RISK The yield token losing value, alAssets losing their peg
  • A normal DeFi loan
    MORPHO
    You repay it yourself, plus a variable rate.
    MAX LTV
    Set per market
    LIQUIDATION
    the market's limit
    INTEREST
    Variable rate
    YOU BORROW
    Real assets supplied by lenders
    MAIN RISK Collateral price falls and rising rates
  • collateral
  • debt
  • debt with interest
"Yield does not reduce debt directly." Alchemix docs, self-repaying loans
Neither design is simply better. Alchemix lends a much larger share of your collateral's value. Recoup lends less, pays out real USDC and keeps your bond count whole.
MORE DETAIL

In Alchemix you borrow alAssets, synthetic tokens, against ETH or USDC placed in a yield token. Its docs say "Yield does not reduce debt directly." Debt is cancelled when alAssets are redeemed through its Transmuter, which removes an equal amount of collateral. In Recoup you borrow real USDC from its lender pool, funded by its lenders, Recoup among them.

SELF-REPAYING LOANS COMPARED
RecoupAlchemix v3A normal DeFi loan (Morpho)
CollateralDexFi Treasury Bonds, minted with ETH through RecoupETH or USDC placed in Alchemix's yield tokenMany assets
What you borrowUSDC from the lender poolSynthetic alAssetsReal assets supplied by lenders
What repays the debt55% of weekly yield, applied directlyTransmuter redemptions, which cancel debt and remove equal collateralYou
InterestNoneNoneVariable rate
LiquidationYes: the whole position is auctioned once the loan goes above 50% of collateral valueYes, above 95% loan-to-value, if the yield token loses valueYes, once the loan passes the market's liquidation limit
Max loan-to-value25% at launch, adjustable by the owner within fixed bounds90%Set per market
Where the yield comes fromDexFi's treasury strategiesThe strategies behind Alchemix's yield tokenBorrowers' interest, paid to lenders
Main riskDexFi as counterparty and key holder, the bonds' value falling, an owner-controlled custody adapterThe yield token losing value, alAssets losing their pegCollateral price falls and rising rates

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.

6 · THE LINE
WORKED EXAMPLE · $1,000 OF BONDS · ILLUSTRATIVE
How far can the bonds fall?
LOAN TO VALUE25.0%HEALTH2.00 SAFETHE LINE$500EACH HARVESTmoves the line lower. Borrowing more moves it higher.

Borrowing $250 against $1,000 of bonds, the position can be auctioned only after a fall of more than 50%, to below $500.

You can borrow up to the maximum LTV, 25% at launch. Once the loan goes above the liquidation threshold, 50%, the whole position is auctioned as one lot. Figures here are before any yield has paid the debt down.
MORE DETAIL

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.

You can borrow up to the maximum LTV, 25% at launch. Once the loan goes above the liquidation threshold, 50%, the position can be sold. "Value" means NAV, Recoup's own price per bond, posted on-chain about once a day and set with a deliberate haircut, so it can sit below DexFi's figure (how NAV is set).

For example, with $1,000 of bonds you can borrow up to $250. The position then becomes liquidatable if the bonds fall below $500, a drop of more than 50%. Each harvest widens that margin; borrowing more narrows it. If the line is crossed, the whole position is auctioned as one lot, and a low sale costs far more than the 5% penalty: see how liquidation works.

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.

7 · WHEN YIELD FALLS
What happens to the loan for each combination of yield and bond price
BOND PRICE STEADYBOND PRICE FALLING
YIELD PAYING
Debt falls with each harvest
The margin to the line widens on its own.
A tug of war
Yield widens the margin while the falling price narrows it.
YIELD STOPPED
The balance stays put
Low yield does not trigger a liquidation on its own.
THE CASE TO WATCH
LTV rises with nothing pulling the debt down. Repay, or keep an eye on the line.
Yield is not guaranteed. Payouts have skipped weeks before, and yield can fall to zero; then your balance stays put until yield returns or you repay. Low yield does not trigger a liquidation on its own. A rising LTV does, from a falling bond value or from borrowing more, so low yield plus a falling bond price 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.

READ THIS
  • Liquidation.
    Above 50%, the whole position is auctioned.
  • No promised yield.
    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 pull every deposited bond out of DexFi's farm in one transaction, after a public timelock of at least 48 hours. Sending them anywhere except back to Recoup's adapter also needs the consent of a multisig shared with DexFi, which cannot give it without a DexFi signer. The same 48-hour timelock can also replace both keys that post and confirm the bonds' price, without DexFi's consent, and that price decides how much can be borrowed and when a loan can be liquidated. If DexFi drops Recoup's adapter from its approved list, you may be unable to withdraw even after repaying.
  • Audit scope.
    The 33Labs audit covered the lender pool, not the borrowing, collateral, custody, oracle, harvest or liquidation contracts (scope).

KEEP READING