Borrowing

Why Borrow with HLiquity?

The HLiquity protocol offers interest-free loans and is more capital-efficient than other borrowing systems. Instead of selling HBAR to have liquid funds, you can use the protocol to lock up your HBAR, borrow against the collateral to withdraw HCHF, and repay your interest free loan later.

Understanding Collateral

Collateral is the asset that a borrower must provide to open a Trove and take out a loan, acting as a security for the debt. The borrowing fee is added to the debt and given by a base rate. The fee is confined to a range between 0.5% and 5% multiplied by the amount of liquidity the borrower draws.

Loan Repayment

Loans issued by the protocol do not have a repayment schedule. You can leave your Trove open and repay your debt any time, as long as you maintain a collateral ratio of at least 110%.

Collateral Ratio Explained

This is the ratio between the value of the collateral in your Trove and its debt in HCHF. Your Trove's collateral ratio will fluctuate over time as the price of HBAR changes. You can influence the ratio by adjusting your Trove’s collateral and debt.

How to Borrow with HLiquity

To borrow, you must open a Trove and deposit a certain amount of collateral (HBAR). Then, you can draw HCHF up to a collateral ratio of 110%. A minimum debt of 1,800 HCHF (~2,000$) is required. This includes a liquidation reserve (for liquidator gas costs) of 20 HCHF, which is refunded if you pay off your Trove fully.

Understanding Troves

A Trove is where you take out and maintain your loan. Each Trove is linked to a Hedera address, and each address can have just one Trove. Troves maintain two balances: an asset (HBAR) as collateral and a debt denominated in HCHF.

Borrower's Fees

Every time you draw HCHF from your Trove, a one-off borrowing fee is charged on the drawn amount and added to your debt.

Avoiding Liquidation

To avoid liquidation, it's crucial to maintain a collateral ratio above the minimum collateral ratio (MCR) of 110%. If the collateral ratio falls below this threshold, your Trove is at liquidation risk.

Liquidation Process

If your Trove is liquidated, the collateral is sold to repay the debt. A Liquidation Reserve is added to your debt to cover the cost of selling the collateral. The remaining collateral is returned to your wallet.

Redemption Mechanism

The Redemption Mechanism is a unique feature of HLiquity. If your Trove is redeemed against, another user has paid off your debt in HCHF to claim an equivalent amount of your collateral at face value. This can happen when the HBAR price is high (in CHF terms) and the collateral ratio of your Trove is low.

Leverage Opportunities

You can take advantage of leverage by borrowing HCHF against your HBAR collateral. This allows you to increase your exposure to HBAR without additional capital. However, leverage also increases liquidation risks, so managing your Trove carefully is essential.

Trove Adjustments

You may notice that the collateral and debt of your Trove increase without your intervention. This is due to the system's Recovery Mode, which is activated when the total system collateral ratio falls below 150%. In this mode, the system can make adjustments to maintain stability.

Conclusion

Borrowing with HLiquity is a powerful tool that offers liquidity while preserving your exposure to HBAR. However, it's essential to understand the associated risks and responsibilities. Always maintain a safe collateral ratio in your Trove to avoid liquidation and fully capitalize on the opportunities offered by the HLiquity protocol.