Borrowing

Advantages of Borrowing versus Selling

Choosing to borrow against assets instead of selling them outright presents a strategic benefit by preserving the potential for future value appreciation. This approach allows investors to retain their market positions and benefit from potential asset value increases, which would be forfeited upon sale.

Initiating a Borrow Transaction

To engage in borrowing, users must first deposit an asset as collateral, which is detailed in the platform's "Supplying Assets" section. Following this, users must navigate to the 'Borrow' section, select the appropriate asset for collateralization, and specify the amount they wish to borrow. This process is designed to be intuitive while providing robust security measures to protect both the user and the platform.

Determining Borrowing Capacity

The maximum allowable borrow amount is determined by the value of the deposited collateral and prevailing market liquidity conditions. Borrowing limits are strategically implemented to prevent excessive leveraging, which could pose risks to the user and the stability of the platform.

Terms of Loan Repayment

Repayment of loans on PhoLend must be made using the same type of asset that was borrowed, plus any accrued interest. Interest rates on borrowed assets are variable, influenced by market demand for the asset, and may fluctuate according to broader economic conditions.

The Role of the Health Factor

The health factor is a crucial metric within PhoLend's risk management framework. It provides a quantifiable measure of the safety of the loan relative to the value of the collateral provided. A higher health factor indicates a lower risk of collateral liquidation, thereby serving as a protective buffer for the user.

Implications of a Decreasing Health Factor

A reduction in the health factor can occur due to a decrease in the market value of the collateral or an increase in borrowing. A diminished health factor increases the likelihood of liquidation, which might compel the borrower to liquidate assets to fulfill the loan obligations.

Flexible Repayment Framework

PhoLend's lending structure does not enforce a fixed repayment schedule. Borrowers may maintain their loans as long as they meet the collateral requirements. However, it is advisable for borrowers to formulate a repayment strategy to manage accumulating interest, which could otherwise escalate the financial burden over time.

Repayment Procedures

Repayment can be managed through the 'Borrowings' section of the user dashboard. Users must select the 'repay' option for the relevant asset, choose the amount they wish to repay, and execute the transaction. This system is designed to facilitate easy and efficient repayments.

Strategies for Preventing Liquidation

To mitigate the risk of liquidation, borrowers can either repay part of the loan or augment their collateral. Prioritizing repayment of the loan principal is typically more effective for improving the health factor and reducing the overall risk profile.