I don't see how this world work... if the borrower posts 1 XTS of collateral for ever 1 XTS loaned... what is being loaned? Why do they need a loan if they already have XTS.
No such thing as a "risk free loan".... BitAssets are as close as you can get.
This lending service should be viewed more like a home equity loan (collateral > loan) than a margin or consumer credit loan (collateral < loan).
Fully collateralized lending enables borrowers to participate in asset appreciation (dividend/capital appreciation) while putting the value of the asset to work, presumably to earn a greater ROI than just hodling.
It's like taking a home equity loan at 4% and investing in a stock market returning 8%. You keep your house and still participate in capital appreciation but also increase your ROI on the value vested in the house.
When the loan term expires you pay back the capital plus interest and keep the spread.
XTS = house.
The really interesting aspect of loaning XTS is the burn; theoretically XTS is always appreciating in value. Lenders do not loose opportunity cost because they are repaid the same number of XTS lent... plus interest, also payable in XTS. So over the term of the loan the lender participates in XTS capital appreciation, dividend burn... and earns loan interest to boot.
Unless I'm missing something very obvious, everyone planning to just hodl XTS should be lining up to lend. Even 1% increase in ROI would be worthwhile vs. not lending/hodling.
Interest rates would trend to low end of the range as there is little risk and effort required. A large pool of low-rate XTS loan funds would become available for trading, hedging, revolving credit and other schemes.
This would also create a highly capitalized ecosystem that encourages responsible borrowing.
With regard to risk, if the loans are fully secured and the market making fully automated the only risk factor is the BitShares X DAC going rogue. This not happening is the whole point of a DAC, so if you subscribe to the concept of DAC you should not expect a risk premium.