Borrow
Introduction
Borrowing lets users receive liquidity against collateral. Users must choose a market and supply collateral to a tranche to receive the loan token. Open borrows must maintain sufficient collateral to prevent liquidation. The interest rate for borrowed tokens is dependent on tranche utilization and the interest rate model (IRM). Users can close their borrow by repaying the debt amount in the loan token which lets them withdrawal their collateral. An open borrow can be refinanced to other tranches if their is sufficient liquidity. Optionally, users can set up pre-liquidation on their borrows to keep their loan healthy before being liquidated by the protocol.
Why borrow?
Borrowing is useful for a variety of reasons:
Receiving liquidity without selling collateral
Leveraging collateral for potential gains
Running advanced trading strategies
Choose a market
The "Credit" page in the Lotus app provides a list of all available markets.
Navigate
Go to the "Credit" page.
Choose a market
The markets table provides a high-level overview of available markets. Each market shows:
Supply asset(s): Assets than can be used as collateral.
Borrow asset: The asset you will receive upon borrowing.
Default rate: The borrow rate of the tranche with the most demand.
Market size: The total amount of liquidity supplied.
Total borrowed: The total amount of open borrows.
Free liquidity: The maximum amount that can currently be borrowed.
Markets can be sorted and filtered. Once you find a market, click on it to view market details and open a position.
You will navigate to the "Market Details" page
Open a borrow
Borrowing on Lotus gives you more flexibility over your terms, particularly the LLTV. Therefore, to open a borrow, you'll need to specify:
Supply amount: Amount of the collateral asset supplied.
Borrow amount: Amount of the loan asset borrowed.
Tranche (LLTV): The loan-to-value (LTV) ratio at which your loan is eligible for liquidation.
A higher LLTV enables you to borrow more against your collateral. On a given loan, it also improves your loan health and decreases your liquidation price. A higher LLTV typically means paying a higher borrow rate. It is possible to refinance your borrow to a different LLTV in the future.
The Lotus app offers a variety of ways to open a borrow. For example, if you know the amount you want to borrow, but unsure of how much collateral you need, the app will calculate this for you. The guide below assumes you know how much collateral you want to supply.
Enter supply amount
Upon entering the amount collateral to supply, the supply field will "lock." You can unlock this later if you want to update the amount.
Choose borrow amount
You can directly enter the amount you want to borrow or click "max." Choosing "max" will update the amount in borrow to give you a loan health of 1.25 for the currently selected LLTV. To increase the borrow amount further, you can use the "Loan Health" slider to reduce the health score. Additionally, you may use the LLTV dropdown to choose a higher LLTV.
The true maximum amount you can borrow is a loan health of 1.05 at the highest LLTV. To do this, first choose the highest LLTV from the dropdown. Then, slide loan health slider to 1.05.
Review transaction
Click "Review Transaction" which gives a transaction summary before you confirm.
LLTV: The LLTV of your borrow position.
Loan Health: A measure of how close your position is to liquidation.
Collateral: The amount of collateral in USD in the borrow position.
Debt: The amount of debt in USD in the borrow position.
Liquidation Price: The current price at which your loan is eligible for liquidation. Note, the liquidation price will increase over time as interest accrues.
Drawdown: The change in the collateral price that would make the loan eligible for liquidation.
LTV: The current loan-to-value (LTV) ratio of your position.
Borrow Rate: The current interest rate on the debt amount.
Once satisfied, click "Confirm" and sign the transaction.
You will send the collateral to the Lotus smart contract and receive the loan asset in your wallet.
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