For safety reasons, the total amount that can be borrowed has to be less than the value of the collateral, in case of negative fluctuations in the collateral value and to guarantee the interest payment.
The collateral factor
represents how much a user can borrow against the collateral supplied to the protocol, in percent terms. For example, a more stable asset such as USDC may have
% (for $10 supplied, up to $8 of value can be borrowed against it) whereas ALGO may have
Consider a user who deposits multiple assets and uses them as collateral for a loan. The borrowable amount
for a given loan’s collateral balance is:
- denotes the current user collateral balance if they were to withdraw the Asset.
- is the price of the collateral asset.
- is the collateral factor.
- the subscriptrepresents each collateral of the loan.
Since the collateral is composed of different assets, the maximum borrowable amount of each collateralized token must be computed and summed together.