Borrowing
Why borrow instead of selling?
Selling your assets means closing your position on that particular asset. By borrowing you are able to obtain liquidity (working capital) without selling your assets. Users are mainly borrowing for unexpected expenses, leveraging their holdings or for new investment opportunities.
How do I borrow?
To borrow you must deposit a certain amount of collateral (ETH, wstETH, weETH and SCR are accepted) to be used as collateral. Then you can borrow $USDQ up to a certain collateral ratio (which varies per collateral).
What is a collateral?
Collateral is an asset that a borrower pledges to a lender as security for a loan. If the borrower fails to repay the loan, the lender has the right to seize the collateral to recover the debt. Collateral can be physical, like real estate or vehicles, or financial, such as stocks, bonds or digital assets in the context of DeFi. Using collateral reduces the lender’s risk, enabling the borrower to access larger loans or better terms depending on the value and stability of the collateral provided.
What is a collateral ratio?
The collateral ratio is a measure that indicates the value of collateral relative to the value of the loan taken. It is calculated by dividing the total value of the collateral by the total value of the debt. This ratio is crucial in lending, particularly in DeFi, as it helps assess the risk of liquidation. A higher collateral ratio indicates a more secure position, while a lower ratio suggests a greater risk of liquidation if the value of the collateral declines.
How much can I borrow?
The collateral ratio can be as low as 110% for ETH and slightly higher for more volative assets.
How much will I pay in interest rates?
Interest rates can range from 6% to 350%, depending on the user's preferences. This flexibility allows borrowers to manage their debt costs based on market dynamics and liquidity needs.
Users set their interest rate when first opening a Trove, and can then adjust it periodically as they see fit. The interest rate will naturally accrue to the value of your debt, meaning you don't need to pay on a fixed schedule. Instead, users just need to ensure their debt doesn't grow past the point where they are in danger of liquidation.
What asset do I need to repay?
In the Quill protocol, you repay your loan using the same asset you borrowed. You borrow $USDQ, you will return $USDQ. Additionally, Quill allows you to utilize your collateral to facilitate repayment in a straightforward manner. If you prefer to settle the loan based on the USD value, you can easily convert your borrowed $USDQ back into ETH (or other collateral), ensuring flexibility in managing your repayments.
This structure promotes a user-friendly experience by allowing borrowers to make repayments in a manner that best suits their financial strategies and needs.
When do I need to pay it back?
Loans issued by the protocol do not have a repayment schedule. You can leave the loan open and repay your debt any time, as long as you maintain a collateral ratio of at least 110%.
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