Borrowing allows users to unlock liquidity against their supplied assets without selling them.
When a user borrows, they take assets from a lending pool while their supplied assets (marked as collateral) secure the loan. Borrowing is always overcollateralized and governed by on-chain risk parameters to keep the system solvent.
Before Borrowing
To borrow assets, users must first supply assets to a lending pool and mark them as collateral. For a guide on supplying to a pool and marking as collateral, see Supplying.
How Borrowing Works
Each asset has defined borrowing power that determines how much a user can borrow against it.
When a user wants to borrow, collateral value is evaluated against its collateral factor to determine a borrowing limit. A user's borrowing limit keeps their health factor in good standing to avoid liquidation.
Borrowed assets are transferred to the Unified Trading Account or Funding Account and can then be used across the exchange, including trading, transferring, looping, or withdrawing.
Health Factor and Position Safety
The health factor measures the safety of a borrowing position.
It is calculated based on:
- The value of the user's collateral
- The collateral factor
- The value of the user's outstanding debt
Health factors update continuously as prices change or positions are modified.
- Health factor > 1.0: position is healthy
- Health factor < 1.0: position becomes liquidatable
Interest and Repayment
Borrowed assets accrue interest continuously over time. Borrow rates are determined by pool utilization: rates increase when utilization is high and decrease when it is low. Accrued interest increases a user's outstanding debt until it is repaid.
Users can repay borrowed assets at any time, either partially or in full, by opening the borrowed position and submitting a repayment. Repaying reduces outstanding debt and immediately improves the health factor, lowering liquidation risk.
Liquidation Overview
If a user's health factor falls below the required threshold, the borrower's position becomes eligible for liquidation.
Liquidations will seize a corresponding portion of their collateral to return their health factor above 1.
Positions may be liquidated partially or fully in a single transaction, depending on size and conditions. Any remaining collateral after full repayment is returned to the borrower's account.
For full details, see Liquidations.
Safety of Borrowing on Polyester
Because all loans are overcollateralized and liquidations are enforced automatically, the system remains solvent even during sharp market movements. Borrowers retain full control over their positions while benefiting from transparent, on-chain risk management.