What can I do with my RealTokens? How to use them as collateral?
Owning RealTokens is one thing but the question you may ask to yourself is "now what? I will receive weekly income but is there something else ot it?" The question is legit and the answer to this is of course there is more!
RealT is at the forefront of DeFi and is excited to take you through the basics of the RMM.
Based on the Aave protocol, Liquidity providers (Lenders) gain the ability to earn interest and generate passive income returns, while providing liquidity for Borrowers on the RMM platform or collaterize your own RealTokens. Deposit RealTokens or other assets that will serve as collateral; this is called “collateralization”. You can take out a loan and using it to buy more RealTokens for example.
The 2 assets you can currently deposit are USDC and XDAI both are stablecoins. At the moment when this article is written here is the current APY for both:
By supplying these assets you will therefore earn interests.
First of all, it is necessary to deposit RealTokens or other assets that will serve as collateral; this is called “collateralization”. Then in the Borrow section you can select the asset you need.
The amount you can borrow will depend on the amount you have deposited as collateral.
The repayment of your loan is done in the same asset. For example, if you borrow 1000 xDai , you will have to pay back 1000 xDai plus the accumulated interest. You can also use your asset as collateral to repay your loan.
As with lenders, the interest rate you pay on your loan varies according to supply and demand. You can find the interest rate on your loan at any time in the Loan section of the dashboard.
Choosing the interest rate for your loan
The stable rate
The stable rate works like a short-term fixed rate. However, it must be noted that if market conditions change, this rate can be readjusted. While the rate may remain relatively stable, 2 conditions can occur that could cause a modification:
If the utilization rate is above 95%.
If the average loan rate is below 25%.
Please note that the stable rate is deactivated in the event you want to borrow more than 25% of the available liquidity. To choose the stable rate, you will need to select a smaller amount to borrow so as not to exceed 25%.
The variable rate
This rate is based on supply and demand within the RMM. The variable rate fluctuates according to the market. It can therefore be more or less advantageous depending on the situation compared to the stable rate.
Managing the Health Factor and avoiding liquidation
The Health Factor is a number that tells you the ratio between the assets deposited as collateral and the value of the underlying asset borrowed. The Health Factor is the inverse of the Loan To Value, which we have explained in this article.
Thus, the higher your Health Factor, the lower your liquidation risk. If your Health Factor goes down to 1, it means that the value of your collateral is equal to the value of your loan. The liquidation of part of your deposit can be triggered. Keep in mind that a Health Factor of 1 or less has a high chance of being liquidated. A Health Factor of 2 means that the value of your collateral can decrease by 50% before triggering a liquidation risk.
Variation of the Health Factor
Depending on the fluctuation in the value of your deposits and loans, the health factor increases or decreases. If it increases, it means that your financial position is improving and that you are moving away from a liquidation risk.
On the contrary, if the value of your collateral decreases in relation to your loan, your Health Factor decreases, which brings you closer to a liquidation risk.
Period of repayment of your loan and its interest
There is no specific date or schedule for repaying your loan. As long as your position is above the liquidation threshold (Health factor > 1), you can borrow indefinitely. However, when you borrow, you must pay interest. Over time, this interest to be paid back will accumulate in your loan balance. The amount of your loan will increase and therefore lower your Health Factor.
To increase your Health Factor, you have two options:
Repay a fraction of your loan
Deposit new assets as collateral
Liquidations
Liquidation is a mechanism that is triggered when the value of your collateral is lower than the value of your loan. In this situation your Health Factor is less than 1. During a liquidation, a maximum of 50% of the value of the loan can be repaid. To repay your debt, part of your collateral is sold plus a liquidation penalty* which is deducted from your collateral.
*The liquidation penalty depends on the asset used as collateral.
After liquidation, the value of your collateral has decreased in greater proportion to your new loan balance.
How do I avoid liquidation?
To avoid the risk of liquidation, you should keep your Health Factor above 1.
Note: For the same amount of money, partial repayment of your loan allows you to increase your Health Factor by a greater proportion than adding collateral.
Maintaining a Health Factor above 2 gives you a safety margin to manage your position before a potential liquidation risk. You need to stay alert to market fluctuations for volatile assets like wBTC or wETH as well as monitoring your RealTokens. Stablecoins are not exactly equal to $1 at all times. All these parameters can affect your health factor up or down.
RealT is at the forefront of DeFi and is excited to take you through the basics of the RMM.
Based on the Aave protocol, Liquidity providers (Lenders) gain the ability to earn interest and generate passive income returns, while providing liquidity for Borrowers on the RMM platform or collaterize your own RealTokens. Deposit RealTokens or other assets that will serve as collateral; this is called “collateralization”. You can take out a loan and using it to buy more RealTokens for example.
1- Providing liquidity
The 2 assets you can currently deposit are USDC and XDAI both are stablecoins. At the moment when this article is written here is the current APY for both:
By supplying these assets you will therefore earn interests.
2- Collaterizing RealTokens
First of all, it is necessary to deposit RealTokens or other assets that will serve as collateral; this is called “collateralization”. Then in the Borrow section you can select the asset you need.
The amount you can borrow will depend on the amount you have deposited as collateral.
The repayment of your loan is done in the same asset. For example, if you borrow 1000 xDai , you will have to pay back 1000 xDai plus the accumulated interest. You can also use your asset as collateral to repay your loan.
As with lenders, the interest rate you pay on your loan varies according to supply and demand. You can find the interest rate on your loan at any time in the Loan section of the dashboard.
Choosing the interest rate for your loan
The stable rate
The stable rate works like a short-term fixed rate. However, it must be noted that if market conditions change, this rate can be readjusted. While the rate may remain relatively stable, 2 conditions can occur that could cause a modification:
If the utilization rate is above 95%.
If the average loan rate is below 25%.
Please note that the stable rate is deactivated in the event you want to borrow more than 25% of the available liquidity. To choose the stable rate, you will need to select a smaller amount to borrow so as not to exceed 25%.
The variable rate
This rate is based on supply and demand within the RMM. The variable rate fluctuates according to the market. It can therefore be more or less advantageous depending on the situation compared to the stable rate.
Managing the Health Factor and avoiding liquidation
The Health Factor is a number that tells you the ratio between the assets deposited as collateral and the value of the underlying asset borrowed. The Health Factor is the inverse of the Loan To Value, which we have explained in this article.
Thus, the higher your Health Factor, the lower your liquidation risk. If your Health Factor goes down to 1, it means that the value of your collateral is equal to the value of your loan. The liquidation of part of your deposit can be triggered. Keep in mind that a Health Factor of 1 or less has a high chance of being liquidated. A Health Factor of 2 means that the value of your collateral can decrease by 50% before triggering a liquidation risk.
Variation of the Health Factor
Depending on the fluctuation in the value of your deposits and loans, the health factor increases or decreases. If it increases, it means that your financial position is improving and that you are moving away from a liquidation risk.
On the contrary, if the value of your collateral decreases in relation to your loan, your Health Factor decreases, which brings you closer to a liquidation risk.
Period of repayment of your loan and its interest
There is no specific date or schedule for repaying your loan. As long as your position is above the liquidation threshold (Health factor > 1), you can borrow indefinitely. However, when you borrow, you must pay interest. Over time, this interest to be paid back will accumulate in your loan balance. The amount of your loan will increase and therefore lower your Health Factor.
To increase your Health Factor, you have two options:
Repay a fraction of your loan
Deposit new assets as collateral
Liquidations
Liquidation is a mechanism that is triggered when the value of your collateral is lower than the value of your loan. In this situation your Health Factor is less than 1. During a liquidation, a maximum of 50% of the value of the loan can be repaid. To repay your debt, part of your collateral is sold plus a liquidation penalty* which is deducted from your collateral.
*The liquidation penalty depends on the asset used as collateral.
After liquidation, the value of your collateral has decreased in greater proportion to your new loan balance.
How do I avoid liquidation?
To avoid the risk of liquidation, you should keep your Health Factor above 1.
Note: For the same amount of money, partial repayment of your loan allows you to increase your Health Factor by a greater proportion than adding collateral.
Maintaining a Health Factor above 2 gives you a safety margin to manage your position before a potential liquidation risk. You need to stay alert to market fluctuations for volatile assets like wBTC or wETH as well as monitoring your RealTokens. Stablecoins are not exactly equal to $1 at all times. All these parameters can affect your health factor up or down.
Updated on: 27/06/2024