What is borrowing ?

Borrowing allows you to access liquidity from the pool without selling your digital assets. By depositing collateral, you can secure a loan and keep ownership of your holdings.

How Borrowing Works 📤

1. Provide Collateral : Deposit a digital asset to secure your loan.

2. Borrow Funds : The amount you can borrow is determined by the Loan-to-Value (LTV) ratio, which varies depending on the asset you provide as collateral. You can check the specific LTV for each asset by clicking on “Details” in the dashboard. This ratio indicates the maximum percentage of your collateral’s value that you can borrow.

Example : If you deposit $10,000 worth of CORE as collateral, with an LTV of 70%, you can borrow a maximum of $7,000. “Details” section

1. Repay the Loan : Pay back the borrowed amount with interest to regain full access to your collateral. If you need more details on how to borrow funds, the Borrow section may be helpful.

Managing Risk with Collateral 💡

• Health Factor : Tracks the safety of your loan. A higher Health Factor indicates greater loan security.

$$(Collateral Value ÷ Borrowed Amount) × LTV = Health Factor$$

Example : If you supply $10,000 worth of CORE as collateral and borrow $4,000, your Health Factor will be (10,000 ÷ 4000) × 0.8 = 2

• Liquidation : If your Health Factor falls below 1, part of your collateral is sold to repay the loan and maintain the pool’s stability.

Borrowing and Rate Options 📊

• Fixed and Variable Rates : You can choose between stable (fixed) and variable interest rates for borrowing, but only one rate type can be applied to an asset at a time.

• Diverse Portfolio : It's possible to have different rates for different assets within your portfolio.

Now that you’ve learned the basics of Colend’s lending and borrowing mechanisms, here are some essential best practices to help you make the most of your experience.