Variable Rate Borrowing

What is variable rate borrowing

Notional allows you to borrow against your crypto. All borrowing on Notional is overcollateralized, so in order to borrow you need to deposit collateral.
The interest you pay on the amount that you borrow accrues at a variable rate.

Why would you borrow

Many users like to borrow because it allows them to access capital in the form of a loan without having to sell their crypto. This means that you can have access to extra cash while keeping your upside price exposure to your assets.
Some users use the borrowed funds to pay for expenses. Other users use the extra cash to trade or attempt to capture investment opportunities.

How much can you borrow

The amount you can borrow depends on what assets you supply as collateral and what asset you borrow. Some collateral types are riskier than others, and so you can borrow less against them. For example, you can borrow ~0.85 USDC vs. 1 DAI but you can only borrow ~0.7 USDC against 1 USDC's worth of ETH.

What is liquidation

Liquidation can occur when the value of you collateral decreases enough for you to cross the liquidation threshold. During liquidation, some of your collateral will be purchased at a discount to its value by a liquidator who will repay your debt on your behalf.

Why is liquidation necessary

In order to keep Notional lenders safe, the protocol needs to liquidate borrowers when the value of their collateral decreases too much. This helps Notional avoid the situation where users have outstanding borrows that are larger than the amount of collateral they hold on the protocol.

How to avoid liquidation

There are two ways you can avoid liquidation when the value of your collateral starts to decrease: you can either pay back your loan, or deposit more collateral.