Collateral Ratio

Understanding Collateral Ratio and Borrow Limits

The collateral ratio is a safeguard mechanism that ensures the loan remains overcollateralized, meaning the value of the collateral exceeds the loan value. On TezFin, currently, all lending pools have the collateral ratio set at 50%. This means that you can borrow up to 50% of the value of your collateral. If your borrowed amount were to exceed the bounds of your collateral ratio, your collateral could be liquidated! EXAMPLE SCENARIO: If you deposit $1,000 worth of XTZ as collateral, you could borrow up to $500.

• If the value of XTZ were to then double (meaning the value of the XTZ that you deposited increased $1000 to $2000) then your borrowing limit would increase from $500 to $1000.

• If, instead of doubling, the value of XTZ were to instead decrease to 1/2 (one half) its value (meaning, the value of the XTZ you deposited were to decrease from $1000 to $500), then your borrowing limit would decrease from $500 to $250.