Borrowing
Why Borrow on Llamalend?
Borrowing on Llamalend allows users to access liquidity while maintaining exposure to their crypto assets. Instead of selling their holdings, users can use them as collateral to borrow crvUSD or other assets. Users borrowing on Llamalend benefit from:
- Liquidation Protection: If a user's loan health becomes very low, Llamalend automatically starts protecting their position by gradually converting their volatile collateral into stable crvUSD. This creates a safety buffer that reduces their exposure to price volatility
- Maintain Exposure: Keep crypto positions while accessing liquidity. Users don't have to sell their assets to get cash, preserving their potential upside
- Leverage: Use borrowed funds to increase market exposure or invest in additional opportunities
- No Opening/Closing Fees: Users just pay the interest rate while the loan remains open
- No Minimum Loan Amounts: Users can open a loan for any amount, there's no minimum
The liquidation protection is a very unique and novel feature and integral to understand when using Llamalend. For detailed information about liquidation protection and loan health monitoring, see Liquidation Protection & Loan Health.
Borrow Rates
When users borrow crvUSD, they pay interest on their loan's debt based on the current borrow rate. Interest rates mechanics are an essential tool to make ensure for the stability of crvUSD.
This borrow rate on Llamalend is dynamic and adjusts based on different market conditions, with interest charged every second. Users don't need to make manual interest payments—instead, the loan's debt automatically grows over time to account for the accrued interest. There are two types of markets in Llamalend, each with a different interest rate model:
Mint Markets
The borrow rate in mint markets is influenced by two main factors: the price of crvUSD and the size of the Peg Stabilization Reserve (PSR). The rate mechanism is designed to help maintain crvUSD's $1.00 peg through economic incentives.
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When crvUSD trades above $1.00: The borrow rate goes down to incentivize more users to borrow crvUSD. Users can then sell the borrowed crvUSD for other stablecoins or use it for leveraging positions. This creates sell pressure on crvUSD, pushing the price back down toward $1.00.
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When crvUSD trades below $1.00: The borrow rate goes up, making it more expensive to maintain open loans. This encourages users to repay their debt, often requiring them to buy crvUSD (since they may have sold or used the borrowed crvUSD for other purposes). This creates buy pressure on crvUSD, pushing the price back up toward $1.00.
The PSR is another tool that helps keep crvUSD stabilized at $1.00. When crvUSD trades above $1.00, it creates more crvUSD to bring the price down. When crvUSD trades below $1.00, it removes crvUSD from circulation to bring the price up. The size of the reserve affects the borrow rate - a bigger reserve generally results in a lower borrow rate, while a smaller reserve means higher rates.
Lend Market Rates
In lending markets, the rate depends only on market utilization — the percentage of supplied crvUSD that is being borrowed. Unlike mint markets, the price of crvUSD does not influence the borrow rate. Each market has a minimum and maximum rate range. The higher the utilization, the higher the borrow rate.
Market utilization is calculated as:
When utilization is low, the rate stays close to the minimum and there's plenty of crvUSD available to borrow. As utilization increases, the rate increases toward the maximum and less crvUSD becomes available. At full utilization (100%), the rate reaches the maximum and there's no crvUSD left to borrow.