What is Hold & Borrow?

The "Hold & Borrow" mechanism forms the foundation of decentralized lending protocols like Aave, Compound, and Morpho. Instead of selling your assets during a market downturn or for short-term liquidity needs, you deposit your volatile assets (e.g., ETH, WBTC) into a smart contract as collateral. You can then instantly borrow stablecoins (like USDC or USDT) against this collateral.

This approach allows you to retain exposure to your long-term assets while gaining immediate, tax-efficient liquidity. A critical component of this strategy is monitoring the Loan-to-Value (LTV) ratio carefully. If your collateral's value drops sharply, the smart contract will automatically liquidate your assets to repay the loan. Our simulator models absolute liquidation thresholds to protect your capital against sudden flash-crashes and severe market volatility.

Understanding the risk metrics:

Loan-to-Value (LTV)

The current ratio indicating the total amount of borrowed funds relative to the total value of your deposited collateral. A higher LTV ratio means you are closer to the protocol's liquidation boundary, indicating elevated risk.

Health Factor

The primary safety metric calculated by lending protocols. A Health Factor above 1.0 means your position is mathematically solvent and safe. When the Health Factor drops below 1.0, your position is instantly vulnerable to liquidators.

Liquidation Price

The exact market price your deposited collateral must plummet to for your Health Factor to hit exactly 1.0. If the asset depreciates past this specific threshold, part of your deposit is sold off programmatically, often incurring a liquidation penalty fee.

Borrow APY

The annualized interest rate you must pay the protocol for taking the loan. This rate is usually variable and fluctuates based on the utilization of the underlying liquidity pool.

Hold & Borrow Modeler