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Borrow Limit represents your percentage of the maximum amount you can borrow, based on the value you have deposited as collateral and the available liquidity.
Borrow limit = borrow utilisation at 100%
As liquidation will happen as user’s borrowed position exceeds the borrow limit (when borrow utilisation is > 100%),
Borrow utilisation serves as a visual indication of the proportion of total deposited collateral against the total value of borrowed assets, in other words, how close is the position to being liquidated.
The lower the % of utilisation, the safer the user’s collateral is.
Borrow utilisation = 0 : Purple (Safe)
Borrow utilisation < 50%: Green (Low Risk)
Borrow utilisation between 50% to 80%: Yellow (Medium Risk, pay closer attention to positions)
Borrow utilisation between 80% to 95%: Orange (High Risk, improve borrow utilisation)
Borrow utilisation > 95%: Danger, high risk of liquidation
To improve Borrow Utilisation, the user can:
- Repay a portion or the full amount of the borrowed amount
- Add more collateral
Liquidation happens when a borrower’s borrowed asset amount crosses the “borrow limit”, signifying collaterals are not fully covering the borrowed amount as per collateral factors. In a liquidation event, the liquidators will seize the available collateral from accounts that crosses the liquidation threshold and execute market transaction to help repay the borrower’s debt, taking a fee from the process.