How To Borrow Tokens
In order to borrow tokens, you must first supply tokens as collateral (ie. become a lender). This is because the ApeSwap Lending Network relies on over-collateralized loans. It's important to mention that you can still lend tokens and earn interest without borrowing tokens.
NOTE: Any interest you earn from depositing funds helps offset the interest you accumulate by borrowing.
2) Click the Collateral toggle under any of the tokens you've lended on the left side of the Markets tab. In this example, we'll enable supplied BANANA as collateral.
3) Click Enable [Token] As Collateral on the popup. Note any applicable change in your borrowing limit.
4) Confirm the transaction in your wallet.
Done! You have collateralized a lended token, and you can now borrow against it.
5) Select one of the available Borrow Markets on the right side of the app by clicking on the token name/logo. You can borrow any of the available tokens. In this example, we'll borrow BTCB, using our lended BANANA as collateral.
6) On the Borrow tab, enter the number of tokens you wish to borrow, or use the button to pre-fill 75% of your borrowing limit. Note the Borrow APY (payable in the borrowed currency) and the Distribution APY (payable in BANANA).
7) Click Borrow at the bottom of the popup.
Done! You're now borrowing BTCB tokens against the BANANA you supplied as collateral.
The max amount that a user can borrow depends on the amount of collateral deposited and the token's Collateral Factor. The Collateral Factor - expressed as a percentage - is a multiplier used against your supplied assets.
Let's say you supply $1000 WBTC as collateral, and WBTC has a collateral factor of 70%. This means that you can borrow up to $700 of any token ($1000 x 70%). Each token in a lending network (WBTC, ETH, etc.) will have its own collateral factor as determined by the creator of the lending network.
Note: The amount you can borrow is based on the Collateral Factor of the asset (or assets) you are supplying. In the example above, it doesn't matter what asset a user borrows - they supplied WBTC and it had a Collateral Factor of 70%.
It is possible to borrow against multiple tokens as well. So if you supply WBTC and ETH and enable both as collateral, you can borrow against both up to the sum of each asset supplied multiplied by the respective collateral factor.
Just like in traditional finance, borrowers are required to pay interest on their loans. This interest goes directly to the lenders/suppliers of that token, minus the Reserve Factor.
The interest that borrowers pay is determined by the APY listed for the token(s) they are borrowing. It is important to note that APYs are floating and not fixed. Rates get updated on a per-block basis and can fluctuate significantly within relatively short time spans.
The interest that accrues each block is added to a user's borrow position, meaning their borrow position slowly grows over time in proportion to the APY. To pay back this accrued interest, a user simply pays back a portion of their loan.
In essence, borrowing allows people to access the value of their assets while still holding on to them. For example, assume you have some ETH but need USD to pay for something. Instead of selling that ETH, you could use it as collateral and borrow USD against it. Then, if ETH goes up in value, you can sell the ETH for more and repay the loan, pocketing the difference. Of course, there are other use-cases, usually of a financial nature:
- Enter a short position on a token
- Leverage a long position on a token
- Borrow a token for a lucrative liquidity mining opportunity, while limiting exposure to the token
After borrowing tokens from the lending network, it's important to continuously monitor your position to ensure you have enough collateral to support your loan. As prices of tokens fluctuate, your position can be in danger of liquidation if not properly managed.
We recommend reviewing the Lending & Liquidations section for an in-depth look at what that means for you as a borrower. In addition, we will go over safe borrowing practices and how you can avoid being liquidated.