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Borrowing tokens using collateralized assets on 0VIX
0VIX allows users to borrow tokens against the value of funds that they have previously supplied. The amount of value that can be borrowed against an asset is set at the protocol level. When a user takes out a loan, their account will start accruing interest per second on the borrowed assets.
It is necessary to pay back the loan, plus interest, in order to free all supplied assets and withdraw them. In 0VIX, supplied assets are enabled as collateral by default. If a user wants to disable this option, they must manually toggle the Collateral switch within the main user interface on the website.
The asset’s Loan-to-Value ratio is used to determine the maximum loan amount a user can borrow according to the current value of their supplied assets. If a user has supplied $1000 USD worth of ETH as collateral, and the Loan-to-Value figure is 60%, then the user can borrow up to $600 USD worth of assets.
As the Loan-to-Value figures for assets differ, they act cumulatively to allow borrowing. For example, if a user were to supply $1,000 USD of WETH and $1,000 USD of WBTC, the amount of value they could borrow would be $1,250 USD, as while the Loan-to-Value figure for WETH is 75%, WBTC has a Loan-to-Value set at 75% ($750+$750=$1,500).
A user may want to maintain exposure to their current asset that’s appreciating (i.e. holding a long position in profit) while looking to enter another position with additional capital. As a result, the user would be able to borrow capital by using the asset they’re currently holding by depositing it in the protocol instead of fully selling it off. This provides the user with liquidity without the need to sell their current asset.
Example: Satoshi requires additional liquidity to enter a new position but does not want to sell his $MATIC tokens as he expects his $MATIC tokens to increase in value. He may do the following:
He may do the following:
Deposit $MATIC into the 0VIX protocol as collateral
Borrow $USDT using his $MATIC as collateral
Use the borrowed $USDT to buy new positions
The user's Health Factor should be monitored to ensure it does not fall below 1, as this will result in the liquidation of the user's collateral in order to repay the debt, plus additional liquidation fees