Borrow & Repayments
What is Borrowing?
Intersect allows users to borrow various cryptocurrencies by using their supplied assets as collateral. Here's what you need to know:
Collateral Requirement: To borrow, you must first supply assets to the protocol and enable them as collateral.
Borrowing Capacity: The amount you can borrow depends on the value of your collateral and the specific collateral factor for each asset.
Borrow Caps: Each asset has a borrow cap, which limits the total amount that can be borrowed protocol-wide. This helps manage risk and ensure stability.
Variable Interest Rates: Borrowers pay a variable interest rate that adjusts based on market conditions and utilization rates.
Health Factor: This metric indicates the safety of your borrowed position. Maintain a health factor above 1 to avoid liquidation.
Repayments
Repaying your borrowed assets is flexible and user-friendly:
Repayment Options: You can repay part or all of your borrowed amount at any time.
Interest Accrual: Interest accrues continuously, so the amount you owe increases over time.
Repayment Assets: You must repay in the same asset you borrowed, plus accrued interest.
Collateral Release: After repayment, you can withdraw your collateral if it's not being used to secure other loans.
Interest Rate Model: The Dual Curve System
Intersect utilizes a sophisticated dual curve interest rate model to determine borrowing rates. This system helps balance capital efficiency and risk management:
Optimal Utilization Rate: The model aims for an "optimal utilization rate," to balance capital efficiency and liquidity. The rate differs for each asset.
Two Interest Rate Curves:
First Curve (Up to Optimal Utilization): Interest rates increase gradually as utilization rises towards the optimal point.
Second Curve (Beyond Optimal Utilization): Interest rates rise more steeply to discourage excessive borrowing and maintain liquidity.
Dynamic Adjustment: Rates adjust automatically based on the current utilization rate of each asset pool.
Encouraging Liquidity: This model incentivizes liquidity provision when needed most by offering higher rates to lenders as utilization increases.
Mitigating Risk: The steep rate increase beyond optimal utilization helps protect the protocol from liquidity crunches.
Asset-Specific Parameters: Each asset in the protocol has its own set of parameters (like optimal utilization rate and curve steepness) tailored to its risk profile and market characteristics.
Understanding this model can help you make informed decisions about when to borrow or supply assets to the protocol. Keep in mind that while this system aims to optimize capital efficiency and risk management, market conditions can change rapidly, affecting interest rates and borrowing costs.
Remember, borrowing in DeFi carries risks, including potential liquidation if the value of your collateral falls. Always monitor your positions and maintain a healthy collateralization ratio.
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