📔Borrowing

Why borrow instead of selling my assets?

Selling assets involves giving up ownership of that asset and may result in missing out on potential gains or triggering a taxable event. On the other hand, the utilization of borrowing affords an individual the ability to acquire liquidity or operational capital without being compelled to part with their assets. This methodology is frequently adopted by individuals striving to accommodate unforeseen outlays, amplify their holdings, or venture into new investment opportunities.

How do I borrow?

To borrow, you first need to provide an asset as collateral. Then, navigate to the "Borrow" section and select the asset you wish to obtain a loan for. Determine the necessary amount based on the available collateral that you have deposited.

How much can I borrow?

The amount you are eligible to borrow is contingent upon the value of your collateral deposit and the existing liquidity.If the liquidity is insufficient or your "health factor" does not meet the criteria, borrowing an asset may not be possible.

Which asset am I responsible for repaying?

Repayment of your loan is made in the same asset in which it was borrowed. For instance, if 1 ETH is borrowed, 1 ETH plus accumulated interest must be repaid. If a loan is desired to be settled based on the USD value, any of the stable coins supported in the protocol may be borrowed.

How much would I pay in interest?

The rate of interest payable for the acquisition of assets through borrowing is contingent upon the borrowing rate, which is derived from the equilibrium between supply and demand for the asset in question. The borrowing rate can be consulted at any moment within the "Borrowings" section of one's dashboard.

What is the health factor?

The Health Factor serves as a numerical indicator of the stability of the deposited assets in relation to the borrowed assets and their intrinsic value. The greater the value of the Health Factor, the more secure the funds are from the likelihood of liquidation. Upon reaching a Health Factor of 1, the deposit will trigger automatic liquidation. If the Health Factor falls below 1, the deposit is susceptible to liquidation. In the event of a Health Factor of 2, the ratio of collateral to borrowed funds may diminish by half (1 out of 2). The Health Factor is calculated by evaluating the liquidation threshold of the collateral against the value of the borrowed assets.

What happens when my health factor is reduced?

The Health Factor is a variable metric, subject to alterations as a result of fluctuations in the value of the deposited underlying assets. An increase in the Health Factor improves the safety of the borrow position, making the occurrence of liquidation less probable. Conversely, a decrease in the value of the collateralized assets in relation to the borrowed assets will result in a corresponding decrease in the Health Factor, elevating the risk of liquidation.

When do I need to pay back the loan?

The repayment of the loan is not subject to a fixed timeline and may be prolonged indefinitely as long as the stability of the borrow position is sustained. However, with the passage of time and an accrual of interest, the Health Factor may also decline, thereby elevating the risk of liquidation of the collateralized assets.

Avoiding liquidation

To prevent the Health Factor from decreasing to the extent of triggering liquidation, you may choose to either repay the loan or make additional deposits to improve the Health Factor. Of the two available alternatives, repaying the loan would result in a more substantial enhancement of the Health Factor. It is important to ensure that you possess a thorough understanding of the inherent risks involved and possess an adequate knowledge of the utilization of these tools prior to proceeding.