Borrowing, Repay and Liquidation

Borrowing Assets

Users need to deposit assets to be used as collateral before borrowing. Click the "Borrow" button for the asset a user wants to borrow, then follow the guidance to submit a transaction. Their deposits would be used as a collateral for the loan.

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 an HF=2, the collateral value vs borrow can reduce by 1 out of 2: 50%. The health factor depends on the liquidation threshold of your collateral against the value of your borrowed funds.

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.

Repay

There is no fixed time period 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 to make your health factor decrease, which might result in your deposited assets becoming more likely to be liquidated.

Click the "Repay" button and follow the guidance to submit a transaction.

To avoid liquidation

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