Scallop is a Sui-native collateral market for borrowing against supplied assets

Scallop is a Sui lending workflow where a wallet supplies supported assets, receives sCoins as market receipts, and uses separate collateral positions to borrow SUI, USDC, USDT, WETH, WBTC, and other listed Sui assets. The practical angle is position management: supply APY comes from borrower interest, loan capacity comes from collateral weights, and every borrow decision changes a risk level that decides whether the position remains healthy.

Supplying assets starts with the APY pool, not the loan

The supply side is the cleanest entry point. A user deposits an asset into an asset pool, and that pool lends liquidity to borrowers who pay interest over time. The displayed APY reflects the live relationship between available liquidity and borrowing demand. Higher utilization pays suppliers more interest, while a heavily underused pool pays less because borrowers are not competing for funds.

On Scallop, a supplied asset creates a market receipt rather than a static wallet balance. The receipt tracks the claim on the pool, including accrued value. That matters because a supplier does not need to manage interest manually; the accounting lives inside the market object and updates through the protocol's lending mechanics.

How sCoins make the supplied balance portable

sCoins, short for Scallop Market Coins, represent supplied positions in asset pools. They function similarly to receipt tokens in money markets: the wallet holds a tokenized claim, while the underlying asset remains inside the lending pool. As borrower interest accumulates, the receipt's redeemable value grows against the underlying pool asset.

This receipt design also gives builders and advanced users a composable primitive. A position can be represented as an on-chain asset, integrated into other Sui transactions, or used inside derivative workflows without moving the original deposit every time. The user experience feels like a balance, but the important mechanism is a smart-contract claim on pooled liquidity.

Collateral borrowing runs through an Obligation object

Borrowing adds a second structure: the Obligation. Scallop records collateral and debt inside this shared Sui object, while the wallet holds an Obligation Key that proves control over that position. The key behaves like a transferable ownership marker, so moving it to another address transfers authority over the linked borrowing account.

Each Sui address supports multiple positions, including the primary account and sub-accounts. This makes it possible to separate strategies: one account might borrow a stablecoin against SUI, while another keeps a smaller experimental position isolated. The separation matters because collateral in one Obligation does not support debt in another. Each account carries its own health, debt, and liquidation threshold.

Collateral weight and borrow weight set the real ceiling

The amount available to borrow is not equal to the raw market value of deposited collateral. Collateral weight decides how much of an asset's value contributes to borrowing capacity. Borrow weight adjusts the debt side, so volatile or higher-risk borrowed assets count more heavily against the account than a lower-risk asset.

A simple example explains the pressure. If collateral contributes 70% of its market value, a deposit worth 1,000 units gives 700 units of collateral value before debt weighting. Borrowing a stable asset with a weight of 1 consumes that capacity directly. Borrowing an asset with a 1.25 weight consumes it faster, so the same collateral supports a smaller loan. The dashboard's risk level compresses those moving parts into a health indicator.

Utilization drives APY and borrowing cost in three phases

Scallop uses a trilinear interest-rate model. Rates move through three utilization zones rather than a single straight line. At low utilization, liquidity is abundant and borrowing remains cheaper. As utilization rises, the model increases rates to reward suppliers and slow additional borrowing. Near the upper utilization range, the curve steepens to protect pool liquidity.

That design matters for both sides of the market. Suppliers receive stronger APY when demand tightens. Borrowers pay more when they enter a crowded pool, which encourages repayment or new supply. The live rate shown for a market is therefore a reflection of current pool balance, not a fixed coupon.

Fees that affect a Sui loan before yield matters

A loan position has several cost layers beyond the visible borrow rate. Scallop classifies assets into main, emerging, and isolated categories, and the borrowing fee follows that classification. Main assets carry a 0.3% borrowing fee, while emerging and isolated assets carry a 1% borrowing fee. The fee is deducted from the borrowed amount at the moment the loan is opened.

• Borrowing fee: deducted upfront from the loan amount by asset category.
• Borrowing interest fee: a share of paid interest flows to the protocol.
• Sui network fee: paid from the wallet to execute transactions on Sui.
• Oracle fee: covers the extra price-data check used by the market.
• Flash loan fee: 0.1% of the flash-loan amount when that tool is used.

The small Sui and oracle charges matter most for active users who adjust positions repeatedly. A long-term supplier watches the APY and withdrawal liquidity; a borrower watches interest, upfront fees, and how much room remains before the risk level reaches the liquidation line.

Soft liquidation reduces unhealthy debt in slices

In most cases, Scallop uses soft liquidation for unhealthy accounts. When a risk level reaches 100%, the position becomes eligible for liquidation, but a liquidation call repays only up to 20% of the borrower's total debt value. If the account remains unhealthy after that repayment, additional calls follow until the position returns to health or the remaining debt is cleared.

The mechanism combines several parameters. Liquidation factor determines how much collateral counts toward the threshold. Liquidation discount rewards the liquidator with collateral below market value, capped at 15%. Liquidation penalty is the total penalty applied to seized collateral, capped at 20%. For very small debt positions under $10, the full debt can be repaid in one call because incremental liquidation is uneconomical.

A practical first position on Sui

Starting with a small supply-only deposit keeps the workflow understandable. A user needs a Sui-compatible wallet, SUI for gas, and the asset they plan to supply. After connecting the wallet, the user selects a market, reviews the supply APY, deposits, and receives the corresponding sCoin balance. Withdrawing reverses the process by redeeming the receipt against available pool liquidity.

Borrowing adds deliberate steps. Create or select an Obligation, deposit collateral into that account, choose the borrowed asset, and keep the borrowed amount well below the maximum shown by the interface. Repaying debt or adding collateral improves the account's health. Removing collateral, borrowing more, or sharp market movements push the account toward liquidation.

NAVI Protocol, Suilend, and DEX pools solve nearby jobs

Sui users compare this lending route with NAVI Protocol and Suilend when the goal is borrowing or earning lend-market yield. Those markets also focus on money-market activity, while Cetus and Turbos are decentralized exchanges built around swaps and liquidity pools. The choice starts with the job: borrow against collateral, supply assets for interest, swap tokens, or provide DEX liquidity.

For context, Scallop stands out when the user wants Sui object-based account structure, sCoin receipts, isolated sub-accounts, and a liquidation model built around partial debt repayment. A DEX position fits a different risk profile because its returns come from trading fees and pool exposure. A money-market position revolves around interest rates, collateral quality, debt weights, and liquidation management.