Collateral determines how much a user can borrow and how their position is protected on Polyester.
Collateral is not a separate balance or asset type. It is a designation applied to assets a user has already supplied to lending pools. When a liquidation occurs, collateral is the mechanism used to repay outstanding debt.
What Collateral Means
When an asset is marked as collateral:
- It contributes borrowing power to a user's account
- It can be seized during a liquidation event
- It continues earning supply APY unless seized in a liquidation
If no liquidation happens, collateralized assets remain fully owned by the user.
Borrowing Power and Collateral Factors
Each asset has a collateral factor that determines how much borrowing power it provides.
The collateral factor defines the maximum borrowable value relative to the asset’s value.
Example: If an asset has an 80% collateral factor, $100 of supplied collateral allows up to $80 of borrowing.
A user's total borrowing power is the sum of all assets marked as collateral, adjusted by their individual collateral factors.
Collateral and Health Factor
A user's health factor measures how safe their borrowing position is. A health factor below 1.0 makes the position eligible for liquidation.
Users may remove collateral at any time unless doing so would push their health factor into the liquidation range. In that case, the action is blocked to protect the user and the system.
How to Mark or Unmark Assets as Collateral
Collateral settings are managed directly from the Lending page.
From a user's list of supplied assets, each eligible asset includes a “Mark as Collateral” toggle. Enabling this toggle allows the asset to contribute to their borrowing power. Disabling it removes that asset from collateral calculations.
Changes take effect immediately. Each user can unmark an asset as collateral at any time, as long as doing so does not push their account into the liquidation range.
What Happens When Collateral Is Enabled
When a user flags an asset as collateral, certain rights over that asset are temporarily delegated to the protocol.
This allows Polyester to properly seize collateral during liquidation events and enforce solvency guarantees to protect suppliers and lenders.
Users retain full ownership and earning rights unless a liquidation occurs.