Example of Borrowing and Liquidation

Continuing the previous illustration, instead of redeeming his USDC, John decided to use the asset as collateral to borrow CRO

1. John pledges his 5,000 USDC, and with a collateralization ratio of 75%, he can borrow up to 25,000 CRO at the prevailing exchange rate (0.15 USDC per 1 CRO)

2. John decides to only borrow 12,500 CRO (a collateralization ratio of 50%)

3. In 3 months time, assuming a borrowing APY of 12% and constant USDC/CRO exchange rate, John will need to pay back his original balance and its accrued interest to the total of ~12,875 CRO

4. If during the borrowing period, the value of CRO to USDC increases as such that John’s collateralization ratio goes beyond 75%, a liquidation event will occur to a portion of the borrowing in order to bring back the collateralization ratio to below 75%.