Users are not required to lock collateral to participate. Users holding Hue can lend it back to the protocol for a portion of positive interest charged on debt positions.
This provides an immediate use case for users who want a return on their assets. Anyone can acquire Hue through Uniswap liquidity or anywhere else, and get interest for lending it back to TCP.
In addition, this reinforces the peg mechanism as the returns for holding Hue are adjusted automatically along with the interest charged on borrows. This is because interest on lent Hue is taken from positive interested accrued by the protocol. As discussed in ‣ , high positive interest rates encourage position holders to pay back their loans to avoid paying the interest rate, creating a demand for Hue and raising the price. At the same this increases the return on lending Hue back to the protocol, further increasing demand for Hue to lock it and gain increased interest.
In order to keep track of which addresses have added Hue to the system, the system issues a lend token to the user in exchange for the Hue provided. This is identical to the "CToken" concept in Compound, a popular lending protocol. The lend token, called "LendHue", is a fully permissionless and transferrable ERC20.
User's can retrieve their Hue tokens back plus accrued interest at any time by sending the LendHue tokens back to TCP, which will refund the equivalent value of Hue. The accrued interest is built in to this calculation.
Lending (this page)