If you sell your assets, you will lose the possession of this particular asset. It means you would be no longer entitled to the potential upside value gain. Whereas, by borrowing, you can still obtain these potential earnings (working capital) without losing your asset. You can borrow when unexpected expenses happen and leverage your holding assets for other investment opportunities.
In order to borrow, you need to deposit any asset to be used as collateral first (check out the Depositing & Earning FAQ section for more info). After depositing, you simply go to the “Borrow” section and click the “Borrow” button on the asset you want to borrow. Input the amount and approve the transaction. The borrowed amount is based on the available deposits that you used as collateral.
The maximum amount you can borrow depends on your deposited value and the available liquidity. Please notice the health factor and liquidation threshold indicators to guarantee your collaterals are in the state of safety. Besides, you can not borrow if there is not enough liquidity or if your health factor is too low.
When repaying a loan, the type of asset that you need to repay is in the same asset you borrowed. For example, if you borrow 1 BNB you will pay back 1 BNB plus interest accrued. Another way to pay back the loan is using your collateral. 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.
When borrowing, the interest rate you need to pay depends on the borrowing rate which is determined from the supply and demand ratio of the asset. Moreover, the interest rate is a variable rate so that it changes constantly. The current borrowing rate of your borrowed assets is shown in the Borrowing section of your dashboard, you can check it any time.
Health factor is an indicator which is used to evaluate the level of safety of your collateral assets against the borrowed assets and its underlying value. You should keep this indicator as high as possible because the higher the value is, the safer your loans are against liquidation scenarios. The liquidation of your deposits will be triggered if the health factor reaches 1. And if the health factor is below 1, your collateral can be liquidated. The health factor is determined depending on the liquidation threshold of your collateral against your borrowed funds.
The health factor increases or decreases depending on the value fluctuation of your deposited amount. Your health factor increases is a positive indicator, it will improve your borrow position and protect your collateral far from being liquidated. In the case the health factor reduces, it means the value of your collateral assets against the borrowed assets also reduces, it can result in a risk of liquidation of your collaterals.
As long as you maintain your health factor safe, you can borrow for an undefined period. There is no fixed time period to pay back the loan. However, the accrued interest of your borrowing will grow day by day, making your health factor decrease. When it reaches the threshold of liquidation, your deposited assets are more likely to fall into liquidation status.
In order to pay back the loan you go to the Borrowings 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 approve the transaction.