🔶Borrow

Borrowing Against Your Assets

When you sell your assets, you close your position and potentially forgo future gains if the asset appreciates. Borrowing against your assets, however, allows you to maintain exposure to potential upside while obtaining liquidity.

Maximum Borrowing Capacity

The maximum amount you can borrow is determined by the dollar value of the collateral you provide and the specific Loan-to-Value Ratio (LTV) assigned to that asset. LTV ratios vary by asset class to reflect their risk profiles. For example, if an asset such as Inscription has an LTV of 85%, you can borrow up to 85% of the asset’s value. Therefore, providing $100.00 worth of Inscription as collateral allows you to borrow $85.00 in ETH.

Formula for Maximum Borrowing:

Collateral Value × LTV Ratio Maximum Borrowing = Collateral Value × LTV Ratio For Asset: Maximum Borrowing

$ 100.00 × 0.85

$ 85.00 Maximum Borrowing = $100.00×0.85=$85.00

Loan Repayment

Loans must be repaid using the same type of asset that was borrowed. There is no fixed repayment schedule, and the loan can remain open indefinitely, provided the Collateralized Debt Position (CDP) maintains an acceptable LTV ratio.

Monitoring and Assessing Borrower Health

Our platform continuously assesses borrower health by monitoring:

• Collateral Value: The current market value of the collateral.

• LTV Ratios: The ratio of the loan amount to the current value of the collateral.

• Repayment History: The borrower’s record of loan repayments.

Health Factor Calculation: The health factor is a numerical representation of borrower health

Collateral Value × LTV Ratio Loan Amount Health Factor = Loan Amount Collateral Value × LTV Ratio ​

A higher health factor indicates a lower risk of liquidation.

Avoiding Liquidation

To avoid liquidation, borrowers must ensure their health factor remains above a critical threshold. This can be achieved by:

• Repaying Part of the Loan: Reducing the loan amount to improve the LTV ratio.

• Providing Additional Collateral: Increasing the collateral value to lower the LTV ratio.

Sustainable Liquidation Process

If the health factor falls below a predetermined level, a liquidation event is triggered automatically via smart contracts. The liquidation process is designed to minimize losses by selling assets at the most favorable prices. This automated procedure ensures a fair and efficient liquidation, contributing to the stability and prosperity of the ecosystem.

Liquidation Trigger: The smart contract continuously evaluates the health factor. If it falls below the threshold, the contract initiates the sale of collateral to repay the loan.

Example: If the health factor threshold is set at 1.1 and the current health factor drops to 1.05, the smart contract will trigger a liquidation event to restore balance.