Borrowing
How borrowing flows through the protocol - health checks, debt shares, and async execution
Borrow Flow Overview
Two-Phase Execution
Phase 1: Synchronous (Atomic)
All state changes happen atomically:
- Verify signature
- Increment nonce (replay protection)
- Sync pool indices
- Check liquidity
- Mint debt shares
- Check health factor - if too low, rollback and return error
- Schedule async withdrawal
Phase 2: Asynchronous (WAL-backed)
The borrowed assets are sent to the user via the Write-Ahead Log, which handles retries on failure.
Health Factor Validation
Before approving a borrow, the protocol checks two limits after adding the new debt: total debt must stay within the borrowing power set by Max LTV, and the Health Factor must stay at or above 1.0.
Example Calculation:
- User has: 1 BTC @ $50,000 = $50,000 collateral (Max LTV = 65%, LT = 74%)
- Borrowing power: $50,000 × 0.65 = $32,500
- Current debt: $20,000 USDC
- Current HF: (50000 × 0.74) / 20000 = 1.85 ✓
User wants to borrow $10,000 more:
- New debt: $30,000, within the $32,500 borrowing power
- New HF: (50000 × 0.74) / 30000 = 1.23 ✓ Approved
If user tried to borrow $15,000 more:
- New debt: $35,000, above the $32,500 borrowing power
- ✗ Rejected with
MaxLtvExceeded, even though the HF would still be 1.06
The 0.5% activation fee is part of the new debt, so the actual limit is slightly lower than shown here.
Debt Share Minting
Debt is tracked using shares, similar to deposits:
shares = borrow_amount / borrow_index
Example: User borrows 1000 USDT at borrow_index = 1.10 → 909.09 shares minted. After 1 year, index = 1.15: Debt = 909.09 × 1.15 = 1045.45 USDT (45.45 USDT interest owed)
Cross-Chain Borrowing
Users can borrow assets on a different chain than their collateral:
Key points:
- Collateral stays in BTC Pool
- Debt tracked in USDT Pool
- Health factor considers both positions
- User receives native USDT on Ethereum
Borrow Caps
Each pool has a maximum borrow cap to limit protocol risk exposure to any single asset. If the total debt plus the new borrow exceeds the cap, the request is rejected.
Same-Asset Borrowing
Some pools may restrict borrowing the same asset you've supplied. This prevents circular positions that could game the interest rate model.
Interest Accrual
Debt automatically accrues interest through the borrow index:
No action required from borrowers - interest compounds automatically.
Signature Requirements
Borrow requests must be signed with the user's wallet:
Chain | Standard | Format |
|---|---|---|
Bitcoin | BIP322 | Message signature |
Ethereum | EIP-191 | personal_sign |
Solana | Ed25519 | Direct signature |
Nonce Protection
Each account has an incrementing nonce to prevent replay attacks. The provided nonce must match the expected value, and is incremented after each successful request.
Error Scenarios
Error | Cause | Solution |
|---|---|---|
Max LTV Exceeded | Total debt would exceed borrowing power | Add more collateral or borrow less |
Health Factor Too Low | Health factor would drop below 1.0 | Add more collateral or borrow less |
No Liquidity | Pool doesn't have enough funds | Wait for deposits or borrow less |
Borrow Cap Exceeded | Pool reached maximum debt | Borrow from different pool or wait |
Same-Asset Borrowing Disabled | You supply the asset you want to borrow | Withdraw that supply first |
Pool Frozen | The pool has been frozen by the admin | Wait until the pool is unfrozen |
Borrowing creates debt that accrues interest. Monitor your health factor to avoid liquidation during market volatility.