Mirai Protocol

How to Lend and Borrow

Let's consider an example in which an individual desires to borrow WBTC tokens. Given that WBTC tokens hold a LOWER ranking within the Interest Rate Model index, they possess a borrow factor of 0.55.
To begin, the individual must first deposit collateral assets, in this case USDC tokens, which possess a collateral factor of 0.90. As a result, the individual will receive "eUSDC" tokens, which represent the claim on deposited USDC tokens and the interest accrued through utilization. It is important to note that the more individuals borrow USDC tokens, the greater the interest accrual and subsequently, the greater the value of the collateral.
To calculate the maximum amount of WBTC that can be borrowed, one must multiply the borrow and collateral factors: 0.55 x 0.90 = 0.495. As such, the individual can borrow up to 495 USD worth of WBTC against the deposited 1000 USDC tokens (0.495 x 1000 ABC). In the event that the individual chooses to borrow 400 USD worth of WBTC, the system will mint an equivalent amount of "dWBTC" tokens, which represent the principal amount owed and accrued borrowing costs. It is important to note that if borrowing rates increase, the debt levels will correspondingly increase as well.
Risks of liquidation must also be considered. If the value of WBTC tokens rises or borrowing interest increases significantly, causing the value of dWBTC to rise above 495 USD, the individual would be subject to liquidation. In such a scenario, the claim on the collateral (eUSDC) would be given to a liquidator at a discount and the individual's debts (dWBTC) would be exchanged for repayment of the debt.
On the other hand, if the individual borrowed WBTC tokens, sold them and the price of WBTC subsequently decreased, they would have the potential to repay their debts at a lower level and yield a profit. Furthermore, the individual could leverage their position by selling WBTC tokens, purchasing more collateral, borrowing more WBTC tokens and so on, until they reach the borrowing limit. This would result in a leveraged short WBTC/USDC position.
It is worth noting that the system has implemented a swap module, allowing users to leverage their positions easily!