🏦Borrowing

Why would I borrow instead of selling my assets?

When you sell your assets, you are essentially closing your position and forfeiting any potential future gains. By borrowing against your assets instead, you can access liquidity without giving up your ownership or exposure to the asset's price appreciation. This is particularly useful if you believe in the long-term value of your assets but need cash in the short term for expenses, investments, or other opportunities.

How do I borrow on Bonzo Finance?

To borrow on Bonzo Finance, you first need to supply an asset to be used as collateral (check out the Supplying & Earning section for more info). Once you've done this, navigate to the Borrow section, select the asset you wish to borrow, and enter the desired amount. The available amount will be based on the value of your supplied collateral and the platform's available liquidity. Choose between a stable or variable interest rate and confirm the transaction. You can switch between rate types at any time.

What determines the maximum amount I can borrow?

The maximum borrowing amount is determined by several factors, including the value of your supplied collateral, the platform's available liquidity, and your account's health factor. Each collateral asset has specific parameters that influence your borrowing capacity.

What do I need to repay my loan?

Loans on Bonzo Finance are repaid using the same asset that was borrowed, plus any accrued interest. For example, if you borrow 100 HBAR, you will need to repay 100 HBAR plus the interest accumulated over the loan's duration. Bonzo Finance also allows you to use your collateral to repay your loan directly.

Stable vs. Variable Interest Rates: What's the difference?

Bonzo Finance offers two types of interest rates: stable and variable. Stable rates provide more predictability, as they remain relatively consistent in the short term. However, they may be rebalanced periodically to align with market conditions. Variable rates, on the other hand, fluctuate based on the supply and demand dynamics within the Bonzo Finance platform. You can switch between stable and variable rates at any time through your dashboard.

Understanding the Health Factor

The health factor is a key metric that represents the safety of your borrowed position relative to your supplied collateral. A higher health factor indicates a lower risk of liquidation. If your health factor drops to 1, your collateral becomes eligible for liquidation. The health factor is calculated based on the liquidation threshold of your collateral and the value of your borrowed assets. Detailed information on the health factor calculation can be found in the Bonzo Finance documentation.

Managing your Health Factor

Your health factor is directly influenced by the value of your collateral and borrowed assets. If the value of your collateral increases relative to your borrowed amount, your health factor will improve, reducing the risk of liquidation. Conversely, if the value of your collateral decreases, your health factor will decline, increasing the likelihood of liquidation. To maintain a healthy position, you can either repay some of your borrowed assets or supply additional collateral.

Loan Repayment on Bonzo Finance

There is no fixed loan term on Bonzo Finance – you can keep your borrowed position open as long as your health factor remains above 1. However, keep in mind that interest will continue to accrue on your borrowed amount, gradually decreasing your health factor over time. To repay your loan, simply go to the Borrowings section of your dashboard, select the asset you want to repay, choose the repayment amount, and confirm the transaction.

Avoiding Liquidation

To minimize the risk of liquidation on Bonzo Finance, you have two primary options: repaying a portion of your borrowed assets or supplying additional collateral. Of these two strategies, repaying your loan will have a more significant impact on improving your health factor. By proactively managing your positions and maintaining a sufficient collateral buffer, you can ensure the long-term safety of your assets on the Bonzo Finance platform.