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What is Collateral Factor?
The system accepts assets from users to use as collateral for loans, but not all assets are considered equally. While other cryptocurrencies display greater price fluctuation, stablecoins manage to have fairly stable dollar prices. Additionally, during market sell-offs, the liquidity of hazardous tokens tends to decline.
Based on the total value of the assets supplied, the collateral Factor is the highest limit a user can borrow, expressed in percentages. The loan-to-value ratio (LTV) for various DeFi lending and borrowing protocols, as well as conventional financial institutions also serves as a representation of it.
Let's say USDC's collateral factor or LTV is 75%. A user contributes 100 USDC ($100) in total. If so, the user's borrowing capacity for this asset would be $75 (100 USDC * 75%).