Borrowing


Why borrow?

A user may want exposure on their current asset appreciating (going long) while looking to enter another position with additional capital.

As a result, the user would be able to borrow, using the current asset being deposited in the protocol instead of fully selling it off. This provides the user liquidity (working capital) without the need to sell their current asset.

Example: Satoshi requires additional liquidity to enter a new position but does not want to sell his $MOVR tokens as he expects his $MOVR tokens to increase in value.

    He may do the following:
  1. Deposit $MOVR into the MoonLend protocol as collateral
  2. Borrow $USDC using his $MOVR as collateral
  3. Uses the borrowed $USDC to enter his desired positions

Collateral Factor

The Collateral Factor varies across each asset. It is the maximum amount that can be borrowed from the protocol using this specific asset as collateral.

Repayments


Time period for loan repayments

There is no fixed time period to repay back loans. As long as the user's position is safe (Health > 1) , borrowing can be done for an undefined period. However, as time passes, the accrued interest will grow making the user's Health Factor decrease which might result in deposited assets becoming more likely to be liquidated.

Avoiding liquidation

In order to avoid the reduction of the user's Health Factor leading to liquidation, the user can repay the loan or deposit more assets in order to increase their Health factor.

Health Factor

Health Factor is a numeric representation of the degree of safety of user assets deposited as collateral. A higher value indicates that the user's funds have greater safety from liquidation.

f the Health factor goes below 1, a portion of the user's collateral can be liquidated. The Health Factor of a user's funds is a dynamic state, and depends on the liquidation limit of the collateralized position against the value of the loan.

Health fluctuations

Health is how “safe” your loan is, defined as the proportion of total deposited collateral against the total value of the loan. It increases or decreases based on the value fluctuation of the user's deposited asset value against the user's borrowed value.

Higher Health value improves the user's collateral safety and borrow position

Lower Health value worsens the user's collateral safety and borrow position

Having Health below 1 results in the potential liquidation of a portion of the user's collateral.

The protocol also displays colored indicators based off the numerical value of health where:

Health > 2 : Green
Health < 1.99: Orange
Health < 1.1: Red
At Health < 1, liquidations will occur

Borrow Limit:

Borrow Limit represents your percentage of the maximum amount you can borrow, based on the value you have deposited as collateral and the available liquidity.

Improving Health

    To improve Health, the user can:
  • Repay a portion or the full amount of the borrowed amount
  • Add more collateral under "Supply"