The concept of borrowing assets on the OVIX Protocol
Hey guys, you are welcome to another edition with me. My name is Abdulqudus and today, we will talk about how the borrowing system on the OVIX Protocol system works. I hope you enjoy this!
First off, what is OVIX Protocol?
0VIX is a Polygon-based Decentralized Finance (DeFi) liquidity market protocol. Users can easily lend and borrow assets using the ovix Protocol. Depositors who provide liquidity to the protocol may be able to earn interest on their money. The Protocol came as an initiative to combat the challenges that have surged from the decentralised money markets over the years. OVIX Protocol, which has been strengthened with veTokenomics, is committed to providing Polygon users with steady and sustainable payouts via their native token, $VIX.
Why would someone want to take out a loan?
As opposed to what may naturally come to mind, borrowing assets is healthy when done the right way. When a person borrows, it does not necessarily mean that they do not have effective asset management skills. There are a number of situations in which someone may have to take a loan, one of which is a situation in which a buyer strongly believes that the asset he is holding will appreciate in the long run; hence, he doesn’t want to sell it. At the same time, he may wish to acquire other assets which he believes have strong potential too. Short on funds, the perfect solution is to take out a loan on OVIX by depositing the assets he holds into the server and using the loan acquired to get the new assets he wants. It is a win-win situation, no doubt!
What does borrowing look like on the OVIX Protocol?
On OVIX, users can borrow cryptocurrency using the collateral system. Users who deposit assets on the platform, as previously stated, earn interest on their deposits. That is, when a user deposits their assets into the platform to earn passively, they could as well borrow other assets using the deposit as collateral. Just how cool is that?
In fact, assets are originally set up as collateral by default. To change this, a user must explicitly toggle the Collateral switch on the main site user interface.
The protocol determines the maximum amount of money that can be borrowed against an asset. When a user borrows assets, interest is calculated per second on the borrowed assets. However, this does not mean that the percentage of interest accruable on a loan is on the high side. That assumption is far from the truth. The OVIX Protocol system works in such a way that the interest to be paid on a particular loan is fair and reasonable. In fact, the mechanism is designed so that interest earned on deposits may balance out the interest rates accumulated from borrowing. Incredible, right?
How to navigate the system;
First off, the protocol has a system for Loan-to-Value figures. These figures are fixed and are accessible on the server. The Loan-to-Value Ratio of an asset must be evaluated to establish the maximum loan amount a user can borrow. Of course, this is contingent on the current market value of the assets provided.
To illustrate, should a user supply $2000 worth of MATIC considering that the Loan-to-Value figure is pegged at 60%, such a user can only take out a loan for sixty percent (60%) of the total assets supplied, i.e., $2000. In other words, such a user can only take out a loan to the tune of $1200( which is the acceptable percent as against the asset supplied).
You may now inquire, “What about in situations whereby different assets are deposited to the server?” How do we calculate the Loan-to-Value Ratio in that circumstance? Not to worry, I have got you and it is equally as easy peasy as the first instance!
In such circumstances, the respective Loan-to-Value Ratio of each asset is individually calculated and added together. It is the result that will serve as the Loan-to-Value Ratio of both assets.
For example, suppose a consumer supplied $2000 USD in DAI and $1000 USD in WBTC, keeping in mind that the Loan-to-Value Ratio of both assets are 60% and 70% percent respect, the amount of value such user would have access to will be pegged at $1950. Confused? Don’t be. 60% of $2000 DAI + 70% of $1000 WBTC equals $1200+$750, which arrives at $1950.
However, it is important to note that, bearing in mind the decentralised nature of the platform, it is indeed pertinent for the platform to put in place a system that ensures that people will not abscond after taking out loans. This is why there is a borrow limit. A user can no longer borrow once the limit has been reached. Simply put, the borrow limit refers to the quantity of assets users can borrow. It is calculated based on the value of the assets provided and their combined maximum Loan-to-Value ratios.
Navigating the app, a user should follow the following steps to access a loan:
● Proceed to the “Borrow Market” section on the “Markets” website.
● Click on the “Borrow Market” and select the asset class you wish to borrow.
● Enter the required loan amount and click “Borrow” in the opening dialogue box.
Once the transaction is confirmed, you’re good to go.
Then you will notice that interest starts to accrue on the assets borrowed.
Repaying the loan
Now that you are all set, having taken out a loan, the next thing should be paying back the loan. A most wonderful feature of the OVIX Protocol is that loan repayment does not have a set time limit. How cool is that? Borrowing is possible for an indefinite period of time as long as the health factor of the user is kept healthy. The health factor, in simple words, is the level of security of user assets that have been deposited as collateral. The higher the value, the less likely it is to be liquidated. The user’s collateral may be liquidated if the health factor falls below 1. Now, having noted that, a user should follow the following steps to repay a loan;
● Proceed to the “Borrow Market” section on the “Markets” website.
● Click on the “Borrow Market” and click on the “Repay” option.
● Enter the amount to be repaid and click “Confirm” to complete the transaction.
And that’s just about it!
To summarise, the OVIX Protocol’s borrowing system places a strong emphasis on user convenience and financial security. You should definitely give it a try!
We have come to the end of today’s session, guys. See you at some other time!
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