Borrow

Learn how to safely borrow on Liqwid and tap into instant liquidity!

What is the advantage of borrowing instead of selling my assets?

When you sell your assets you exit the position on that specific asset and locking in your current profit or loss on the position. If you have long term crypto holdings or are long on the asset, you would not realize any potential future value appreciation. When you instead borrow you are able to access liquidity without selling your crypto assets. Most users complete borrows to access working capital and tap into the liquidity of their long term holdings.

How do I borrow?

Before borrowing you must supply an asset into a Liqwid market to be used as collateral (please review Supply & Earn FAQ section for more details). Once you complete a supply action, navigate to the "Your Borrows" section of the Dashboard and click on “Borrow” for the asset you would like to borrow. Enter the amount you want to borrow depending on your supplied amounts that would be used as a collateral for the loan. Click on "Borrow" and submit your transaction. You may modify the loan to add or remove collateral at any time after the loan has been created.

How much can I borrow?

The maximum amount you can borrow depends on the total value of your supplied asset(s), and the Borrow market’s current liquidity. You can't borrow an asset if the current liquidity is less than the amount you want to borrow from the market. Similarly if your loan's health factor is too low you won't be able to complete the borrow transaction. You can review each asset supported as collateral on Liqwid and its specific risk parameters for borrowing in the market's details page. Liqwid v2 introduced the borrow cap risk control feature which limits the total amount of liquidity that may be borrowed from a market to protect lenders during periods of heightened borrow demand. Borrow caps for each asset are displayed in the market's details page.

What asset do I need to repay?

You must repay your full loan in the same asset you borrowed. For example, if you borrow 100 ADA you will pay back 100 ADA plus interest accrued from the moment you open the loan to the moment you repay the loan.

Can I borrow at a stable interest rate?

No, the Liqwid protocol only supports variable rate borrowing. The borrowing rate is calculated individually for each asset based on the assets current supply and borrow demand (Market Utilization). Markets with low borrow demand have lower borrow rates, markets with strong borrow demand have higher borrow rates.

How much would I pay in interest?

The interest rate you pay on your loan(s) is based on the borrowing rate. The variable borrow rates update continuously as supply and borrow actions are processed in a market, impacting the total you would pay in interest. In the Dashboard section of the app the current borrowing rate for each market will be displayed in the "Your Borrows" section.

What is the health factor?

The health factor is a number which calculates the safety of your collateral assets compared to your borrowed assets based on USD value. A larger health factor represents a safer loan, your collateral assets are more secure from a liquidation event the higher your health factor is. If your loan's health factor goes to 1 or below, the liquidation of your collateral assets will be enabled. For a health factor of 2, the collateral USD value can reduce by 50% against the borrow USD value. Your loan's health factor is based on the liquidation threshold of your collateral assets and the collateral USD value versus the USD value of your borrowed assets. You can find all of the collateral parameters in the market's details page.

What happens if my health factor is reduced?

Based on the change in USD value for your supplied assets against the change in USD value for your borrowed assets, your loan's health factor will move up or down. If your loan's health factor increases, it will improve your collateral asset's safety by moving the liquidation threshold further out from being triggered. If the USD value of your collateral assets decrease versus the USD value of your borrowed, your loan's health factor is also decreased, this would reduce your collateral asset's safety by increasing the risk of reaching the liquidation threshold.

What is the collateral factor?

A market's collateral factor can range from 0-90%, and determines the liquidity that a user receives against their qToken collateral.

Typically, high market cap or assets with more liquidity have higher collateral factors and low market cap or less liquid assets have lower collateral factors. This is implemented to protect liquidity protocols from backing a large percent of liabilities with illiquid assets marked by increased volatility and slippage. If a market has a 0% collateral factor, the asset can't be used as collateral though it can still be borrowed.

Collateral factors updated can be proposed and implemented via onchain governance votes in the Liqwid DAO. Liqwid DAO community members propose updates to market collateral factors to manage the protocol's risk and effectively adapt to changing market conditions.

When do I need to repay my borrowed assets?

Loans are perpetual in Liqwid meaning there is no fixed time period where you must repay the loan. If your position is secure (health factor > 1), you can borrow for as long of a time period as you want. The accrued interest on your loan will increase over time causing your remaining borrowable amount to decrease. This could result in increasing the possibility of reaching the liquidation threshold.

How do I repay my loan?

To repay your loan browse to your open positions in the "Your borrows" section of the dashboard and click the "Repay" button for the asset you borrowed and want to repay. Enter the amount to repay and confirm the transaction in your connected wallet.

How do I avoid liquidation?

Maintaining a strong health factor (above 2) helps avoid risk of reaching the liquidation threshold that would trigger a collateral liquidation. You can do this by repaying your loan or depositing more collateral assets in your debt position to increase your health factor. Of these two available options to more safely manage your borrow position, repaying the loan would increase your health factor more (since each USD repaid increases your health factor 1:1 but each USD supplied increases your health factor 1 USD x the collateral factor of the asset).

Any other lending questions

If you have any additional questions please join the Liqwid Discord server where Community Managers and Core Team members are available to answer all of your inquiries. *Please note there is NO Liqwid telegram and there is NO LQ airdrop. Please immediately report any Liqwid telegram channel you come across as a scam and be sure to stay safe by always verifying everything in our Liqwid Discord server.