Borrow Stablecoins
Borrowing stablecoins from Monolith allows you to access liquidity while maintaining exposure to your collateral. This guide covers the complete borrowing process, including choosing between paid and free debt modes.
Prerequisites
Before borrowing, ensure you have:
- Compatible collateral tokens (check the instance’s accepted collateral)
- Sufficient collateral to meet the minimum debt requirement
- Understanding of paid vs free debt modes
- Awareness of liquidation risks
Step 1: Deposit Collateral
Deposit collateral to establish your borrowing power.
- Navigate to the borrowing interface for your chosen stablecoin instance
- Select the amount of collateral to deposit
- Approve the collateral token (first time only)
- Confirm the deposit transaction
Your borrowing power is calculated as:
Borrowing Power = Collateral Value × Collateral Factor
Step 2: Choose Your Debt Mode
Before borrowing, decide between paid debt or free debt:
Paid Debt (Default)
- Interest: Accrues continuously based on the current borrow rate
- Redemptions: Your collateral is protected from third-party redemptions
- Best for: Passive borrowers who prefer predictable collateral ownership
Free Debt
- Interest: Zero interest - your loan is always free
- Redemptions: Your position is part of the redeemable pool; external users can redeem Coin against your collateral
- Best for: Active borrowers optimizing for cost of capital
To switch modes, toggle your “redeemable” status in the interface or call:
lender.setRedemptionStatus(yourAddress, true); // Enable free debt
lender.setRedemptionStatus(yourAddress, false); // Enable paid debt
Step 3: Borrow Stablecoins
- Enter the amount you want to borrow
- Ensure your debt stays above the minimum debt requirement
- Review your health factor / collateralization ratio
- Confirm the borrow transaction
The protocol enforces that your debt balance is either:
- Zero (fully repaid), or
- At or above the minimum debt threshold
Step 4: Monitor Your Position
After borrowing, actively monitor:
Health Factor
Your position becomes liquidatable when your debt exceeds your borrowing power. Monitor the collateral price and your debt balance (which grows over time if using paid debt).
Interest Accrual (Paid Debt Only)
Interest accrues continuously. The borrow rate adjusts based on the system’s free debt ratio:
- Rate increases when free debt share is below target
- Rate decreases when free debt share is above target
Redemption Activity (Free Debt Only)
When redemptions occur:
- Your debt decreases proportionally
- Your collateral is seized proportionally (minus a small fee you keep)
- Your effective LTV may increase if collateral is seized faster than debt decreases
Step 5: Repay or Adjust
Repay Debt
- Acquire the stablecoin (via purchase or other means)
- Enter the repayment amount (or select “Max” to repay fully)
- Confirm the repayment transaction
Partial repayment is allowed as long as your remaining debt stays above the minimum (or goes to zero).
Withdraw Collateral
You can withdraw collateral as long as:
- Your remaining collateral maintains sufficient borrowing power for your debt
- The oracle price is not stale (reduce-only mode)
Add More Collateral
Deposit additional collateral at any time to improve your health factor.
Delegation
You can delegate control of your position to another address:
lender.delegate(delegateAddress, true); // Enable delegation
lender.delegate(delegateAddress, false); // Revoke delegation
- Adjust your collateral and debt
- Switch your redemption status (paid/free mode)
Delegates have significant control over your position. Only delegate to addresses you fully trust.
Risk Management
Liquidation Risk
- Maintain a healthy buffer above the minimum collateral ratio
- Monitor collateral price movements
- Set up price alerts for your collateral asset
Interest Rate Risk (Paid Debt)
- Rates can increase when free debt share falls below target
- Consider switching to free debt during high-rate periods (accepting redemption risk)
Redemption Risk (Free Debt)
- Your collateral can be redeemed at any time
- Active redemptions reduce both your debt and collateral
- The redemption fee you keep partially compensates for adverse selection
Common Operations
| Action | Function | Notes |
|---|
| Deposit & Borrow | adjust(account, +collateral, +debt) | Single transaction |
| Repay & Withdraw | adjust(account, -collateral, -debt) | Single transaction |
| Switch to Free | setRedemptionStatus(account, true) | Zero interest, redemption risk |
| Switch to Paid | setRedemptionStatus(account, false) | Interest accrues, no redemptions |
| Delegate | delegate(address, true/false) | Grant/revoke position control |
