Borrowing

Why would I borrow instead of selling my assets?

Selling your assets means closing your position on that particular asset. Hence, if you are long on the asset, you would not be entitled to the potential upside value gain. By borrowing you can obtain liquidity (working capital) without selling your assets. Users are mainly borrowing for unexpected expenses, leveraging their holdings or for new investment opportunities.

How do I borrow?

Before borrowing you need to deposit any asset to be used as collateral (check out the Depositing & Earning section for more info). After this, simply head to the Borrow section and click on “Borrow” for the asset you want to borrow. Set the amount you need based on your available deposits that would be used as collateral for the loan.

How much can be borrowed?

The maximum amount you can borrow depends on how much you have deposited and the available liquidity. If your health rating is not sufficient, or if there is not enough liquidity available you will not be able to borrow.

With what asset do I need to repay?

You repay your loan with the same asset you borrowed. For example, if you borrow 1 ETH you will pay back 1 ETH + interest accrued. If you want to pay back the loan based on USD price you can borrow any of the available stable coins as USDC, DAI, USDT, etc.

How much would I pay in interest?

The interest rate you pay for borrowing assets depends on the borrowing rate which is derived from the supply and demand ratio of the asset. Moreover, the interest rate of a variable rate changes constantly, whereas a stable interest rate provides stability for the interest rates. You can find your current borrowing rate at any time in the Borrowings section of your dashboard.

What is the health factor?

The health factor is the numeric representation of the safety of your deposited assets against the borrowed assets and their underlying value. The higher the value is, the safer the state of your funds is against a liquidation scenario. If the health factor reaches 1, the liquidation of your deposits will be triggered. A Health Factor below 1 can get liquidated. For a HF=2, the collateral value vs borrow can be reduced by 1 out of 2: 50%. The health factor depends on the liquidation threshold of your collateral against the value of your borrowed funds.

For more technical details about the health factor calculation, please see the Liquidations page.

What happens when my health factor is reduced?

Depending on the value fluctuation of your deposits, the health factor will increase or decrease. If your health factor increases, it will improve your borrow position by making the liquidation threshold more unlikely to be reached. In the case that the value of your collateralized assets against the borrowed assets decreases instead, the health factor is also reduced, causing the risk of liquidation to increase.

When do I need to pay back the loan?

There is no fixed time to pay back the loan. As long as your position is safe, you can borrow for an undefined period. However, as time passes, the accrued interest will grow making your health factor decrease, which might result in your deposited assets becoming more likely to be liquidated.

How do I pay back the loan?

To pay back the loan you simply go to the Borrowing section of your dashboard and click on the repay button for the asset you borrowed and want to repay. Select the amount to pay back and confirm the transaction.

How do I avoid liquidation?

To avoid the reduction of your health factor leading to liquidation, you can repay the loan or deposit more assets to increase your health factor. Out of these two available options, repaying the loan would increase your health factor more.

If you still have any questions, please reach out to the Yuzu team in our official Discord.