> For the complete documentation index, see [llms.txt](https://constant-finance.gitbook.io/docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://constant-finance.gitbook.io/docs/v0/concepts/design-philosophy.md).

# Design Philosophy

Constant Finance is built around bilateral pricing, isolated loan state, and explicit ownership of supplier claims. Together, these choices give borrowers predictable unit costs and let suppliers decide the terms under which their capital may be used.

## Isolated Positions

Every completed loan receives its own Position, with its own borrower, collateral, debt, rates, maturity, and risk configuration.

Actions on one Position—such as repayment, refinance, collateral changes, or liquidation—do not directly alter another Position's accounting. This isolation limits risk from spreading across loans, although it does not remove the oracle, liquidity, or execution risks inside an individual Position.

## Just-in-Time Liquidity

A Supply Order is an authorization to provide assets, not a deposit receipt. Until a match settles, the assets stay in the supplier's wallet and remain available for other uses.

At settlement, the protocol transfers only the amount used in that match. This makes supplier capital more efficient before a loan opens, but it also creates an execution condition: an otherwise valid Order can fail if the supplier's balance or approval is no longer sufficient.

## Fixed Rate, Flexible Duration

Borrower and supplier unit rates are fixed when a Position opens. The Position also has a fixed maturity, but the borrower may repay part or all of the debt at any earlier time.

For borrowers, this means predictable pricing without a requirement to keep the loan outstanding until maturity. For suppliers, it means a known unit rate with uncertain realized duration: early repayment can return capital sooner, but it can also reduce the total interest earned and create a need to redeploy that capital.

## Transferable Supplier Claims

Every non-zero supplier fill creates a Constant NFT. The NFT separates ownership of the supplier claim from the identity of the original supplier.

Transferring the NFT does not alter the borrower's debt, maturity, collateral, or rate. It simply transfers the right to receive the repayment amounts associated with that claim to the new owner.

## Atomic Refinance

Fixed terms matter because neither party can rewrite them after settlement. If a borrower wants a different rate, maturity, or collateral arrangement, Constant Finance settles the old debt and originates a new one.

Both outcomes happen in one atomic operation: the old Position closes as the new Position opens. If any required step fails, the entire refinance reverts and neither outcome takes effect.

## Design Trade-offs

| Design choice                           | User benefit                                  | Main trade-off                                                    |
| --------------------------------------- | --------------------------------------------- | ----------------------------------------------------------------- |
| One Position per loan                   | Clear terms and isolated risk                 | More contracts and Position-specific state                        |
| Offchain Orders with onchain settlement | Supplier assets are not deposited in advance  | Balance and approval can change before execution                  |
| Fixed unit rate with early repayment    | Predictable pricing with duration flexibility | Supplier duration and total interest are not guaranteed           |
| One Constant NFT per supplier fill      | Transferable, independently claimable rights  | A single loan may produce several NFTs                            |
| Escrow followed by claims               | One recipient cannot block borrower repayment | NFT holders must take a separate action to receive funds          |
| Close-and-reopen refinance              | Existing claims are never rewritten           | New liquidity and a more involved atomic transaction are required |


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