Why would I want to borrow assets?

Borrow instead of sale of assets

By borrowing you are able to get cash without selling your assets.

Selling your assets means closing your position on that particular asset. Hence, if you have unrealized losses and you sell, you will incur those losses and lose any upside. Equally, if you have unrealized profits, you may not want to cash out if you think that the value of the asset will continue to rise.

Borrow to go short

Borrowing to go short can make sense if, for example, you believe that the value of the asset you are borrowing is going to fall. Shorting allows you to profit when the price of the asset falls.

How do I borrow?

Once you have assets in your pool, you can borrow other people’s assets. The amount (USDc-equivalent) you can borrow overall is equal to:

Initial Loan-To-Value for the pool (%) * Value of the pool (USDc),

where Initial Loan-To-Value is a weighted average Initial Loan-To-Value calculated on the basis of each of a pool’s asset’s Initial Loan-To-Value and the weight of this asset in the pool.

You simply select which asset you want to borrow, how many tokens and what interest rate you want to pay (market rate or limit order). Currently all orders are Open Deposit (1 day). You then place the order and wait for it to be filled. That’s it.

How much can I borrow?

The maximum amount that you can borrow depends on the amount of assets that you have deposited, the volatility of the assets and the available liquidity. You cannot borrow an asset if borrowing an asset would increase your LTV (Total Debt/Total Assets) above the Initial LTV.

For example, if the Initial LTV % is 50% and you have 5 BTC @ $17,500 in assets with a value of $87,500 and you borrow 35,000 DAI, your Current LTV would be 43%. If you then borrow another 10,000 DAI for a total of 45,000 DAI, your new Current LTV would be 51%. The protocol would not let you make the second borrowing trade as it pushes the LTV above the Initial LTV. If you reduced the amount of DAI you were borrowing to an additional 7,000, the new LTV would be 48% and would be allowed.

How much do I pay in interest?

Oxygen uses an on-chain matching protocol to set rates. In other words, when you set up assets to lend or to borrow, you specify whether you want to make a Market Order or a Limit Order. If you choose Market, then the protocol will match your order with the best rate available – lowest interest rate if you are borrowing and highest if you are lending.

The interest rates you see in the Interface are quoted as annual interest rates. That means that for 1 day, the interest rate earned is interest rate / 365. For example, if the interest rate is 5%, then the daily interest rate is 5%/365 = 0.0137%.

The interest rate is set purely by the market based on the settings you used when making the trade (LIMIT or MARKET).

When do I need to pay back the loan?

Assets are repaid plus interest in 1 day (Open Deposit).

How do I pay back the loan?

You repay the loan at the end of the borrowing term by selecting Repay from the Pool overview.

How do I avoid liquidation?

In order to avoid going over the Critical LTV which will lead to liquidation, you can repay the loan or deposit more assets in order to decrease your LTV. Out of these two available options, repaying a loan decreases your LTV more.

To illustrate this point, consider the following scenario:
  • You have deposited $100 in assets.
  • You have borrowed $69 in assets.
  • Your Pool LTV is 69%.
  • The Critical LTV is 70%.

You clearly need to do something as you are very close to going past the Critical Margin of 70%. If you were to deposit $10 more in assets, you would have $110 with $69 in loans, leaving your new LTV to be 63%. On the other hand if you were to pay back $10 of your borrowings, you would end up with $100 in assets but only $59 in loans. That would lead to a LTV of 59%.

As long as the LTV remains below the Critical LTV, your Pool will not be put into liquidation.