Loans

Borrow $BERA at 99% LTV

Borrowing

• Mechanism: Users can borrow using $BREADas collateral.

• Loan Terms:

  • Collateral Requirement: Users can borrow up to 99% of their $BREAD's value in $BERA (99% Loan-to-Value Ratio)

  • Duration: Minimum 1 day, Maximum 365 days

  • Interest: Interest rates are calculated on a linear scale with an APR of 6.9%. Interest is collected up front, upon initiation of a loan.

    • There is a minimum interest fee to ensure that the burn fees cannot be bypassed by taking a 1 day loan and defaulting

    • Please visit Interest Feesfor more detail

  • Liquidation: If a loan defaults, then the $BREAD collateral is burned. Since loans are over-collateralized, burning the collateral causes the ratio of $BERA per $BREAD to increase. $BREAD collateral from liquidated positions are burned collectively, every day, at 00:00 UTC

Important Note: You can only have one active loan position at a time in BakerDAO. If you already have a Standard loan, you cannot create an automated looped position (and vice versa) until you close your existing position

*Loans can taken with a 99% LTV. Interest is paid upon initiation of the loan, and is deducted from the total borrowed amount. 65% of fee increases $BERA backing, 15% is used for liquidity bribes, and 20% is retained by the treasury

The maximum amount that can be taken as a loan is determined by the $BERA backing of $BREAD and the ratio between both assets, it is not dependent upon secondary market value. Therefore, loans cannot be liquidated by price movement, and loss of collateral is only possible if user does not pay back loan in time

Liquidation example

• Assume there is 100 $BREAD tokens in circulation, and there 100 $BERA tokens backing them on the contract. The price of 1 $BREAD is 1 $BERA. All the $BREAD is owned by one user

• A user can take a loan that is 99% of their $BREAD value. In this case, they use 100 $BREAD as collateral to borrow 99 $BERA, and specific a loan length when initiating the loan (must be between 1 and 365 days)

• The user fails to repay their loan on time, leading the position to be liquidated. 99.7% of the collateral, or 99.7 $BREAD, is burned and the remaining 0.3%, or 0.3 $BREAD is distributed to PoL bribes and treasury

• As the loan was 99% LTV, the 1% collateral premium as well as 65% of interest fees are added to the $BERA backing of $BREAD, which leads to the exchange ratio between them increasing with more $BERA backing each circulating $BREAD