Borrowing

Credit lines for depositors inside Curvance

Borrowing Limits

A user’s borrowing capacity within Curvance is determined by two key factors: the collateralization ratio set by the Curvance DAO and the available liquidity within the isolated market.

1. Collateralization Ratio

The collateralization ratio defines the maximum borrowing threshold for each asset, reflecting its specific risk profile. Assets with lower risk have higher collateralization ratios. For example, an asset with a 75% collateralization ratio allows a user to borrow up to $0.75 for every $1.00 of the asset deposited as collateral.

Curvance calculates each user’s borrowing limit as a blended collateralization ratio across various assets within an isolated market. This blended Loan-to-Value (LTV) ratio represents the maximum amount users can borrow based on the combined collateral they’ve supplied.

Example: A user deposits $100 of WETH/wstETH LP tokens, which earns an APR of approximately 4%. Leveraging the ERC-4626 architecture, Curvance directs the LP tokens to an underlying protocol to capture yield. With a collateralization ratio of 80%, the user can borrow up to $80 in assets, against their LP tokens.

2. Available Liquidity

A user’s ability to borrow also depends on the pool’s liquidity. If the requested loan amount exceeds the available liquidity in a given pool, borrowing may not be possible.

Example: A user deposits $1000 of cbBTC into a market with $50 in available USDC liquidity on the lending side. With a collateralization ratio of 90%, the user can borrow up to $900 in assets against their wrapped bitcoin. Still, with only $50 in available liquidity, the user can only borrow up to 50 USDC even though the Protocol Risk Engine would support a larger debt position.

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Repaying Loans and Collateral Redemption

To close a debt position, users must repay the borrowed amount and any accrued interest costs in the same asset initially borrowed. This can be done via the Curvance front end or directly through smart contracts. After repayment, users can redeem their collateral and underlying assets by returning the pTokens received at the time of the initial deposit.