Borrowing is collateral based. Collateral is crypto here and it is locked in smart contract. So, the loan is secured. Ex- you can get 75% loan term value by submitting 1 ETH in Aave. Collateral gets liquidated when ETH price falls below liquidation threshhold( for Aave it is 80%). When liquidation happens, liquidators impose liquidation penalty of 5% in Aave. You can check Aave dapp through metamask or Trustwallet. It is very user friendly and easy to understand.
Only risk is liquidation risk. No cryptocurrency is stable. So if ETH price falls heavily, the collateral gets liquidated and incurs some loss (not total loss).
Borrowing is collateral based. Collateral is crypto here and it is locked in smart contract. So, the loan is secured. Ex- you can get 75% loan term value by submitting 1 ETH in Aave. Collateral gets liquidated when ETH price falls below liquidation threshhold( for Aave it is 80%). When liquidation happens, liquidators impose liquidation penalty of 5% in Aave. You can check Aave dapp through metamask or Trustwallet. It is very user friendly and easy to understand.
Thank you for this comment @paragism,
I was also wondering, what is the difference then to a leverage trade where you have USD or ETH in collateral to use more ETH?
It is for a longer period of time? I'll check it out, thank you :)
Only risk is liquidation risk. No cryptocurrency is stable. So if ETH price falls heavily, the collateral gets liquidated and incurs some loss (not total loss).