🏦Borrowing
Explanation of how to borrow with Seismic.
Last updated
Explanation of how to borrow with Seismic.
Last updated
Users who believe in the growth of an asset my choose to borrow it. This keeps capital free to invest elsewhere, leverage positions and/or pay expenses while simultaneously keeping exposure.
Before borrowing is allowed, an asset must be deposited to be utilized as collateral. After collateral has been provided, visit the ASSETS TO BORROW section and click 'Borrow' for the asset you would like to borrow. You can see the interest payment required on the loan here. The rate will increase if the asset you are borrowing has a high percentage lent out. Set the amount you would llike to borrow against your available deposit(s) and confirm the transaction.
The amount you are able to borrow is dependent on your collateral value, the available liquidity of the asset you would like to borrow, and the LTV of your collateral. For example, if your collateral has a 50% LTV you would be able to borrow against half of it's value (as long as there are enough assets available to borrow).
Loans are repaid in the asset borrowed. Borrowing ETH against USDB will require ETH to be repaid, with any interest accrued, to free all your collateral for withdraw. You can repay a loan by navigating to YOUR BORROWS on the main page and selecting 'Repay'
The interest rate paid is variable and depends on asset utilization, both of which change frequently. When more of an asset is borrowed, the rate to borrow it increases on all outstanding loans. The inverse is also true, and the interest rate decreases with low utilization. High interest rates can attract additional deposits, incentivize loan repayment, or both. The interest from borrowing can be viewed on the "Borrow" tab at any time.
The Health Factor is an indicator of how close your collateral is to being seized to repay debt. Liquidations happen in portions, up to 50% of the loan size at a time. During times of high volatility, it is possible to see partial liquidation. Here's an example:
An asset is borrowed with a 40% LTV and the Health Factor goes to 1. The entire position is liquidated, leaving 60% of the collateral remaining (minus the liquidation fee).
Higher Health Factor values indicate a safer position. Borrowing less, relative to your maximum allowance, will result in a higher Health Factor.
As long as the position is healthy, the is no set duration for any loan. Meaning, if the supplied asset rises in value more quickly than the interest rate + value borrowed asset(s), the loan will be safe from liquidation.
When a Health Factor is approaching 1, users may choose to either add more collateral or repay their loan. Repayment can be made with external capital in a user's wallet. The Health Factor will increase more by repaying a percentage of the loan more than it would by supplying additional collateral.
The fees and thresholds for liquidation can be found on the Accepted Collateral Typespage.
