Borrowing

Portfolios that have pledged collateral receive a line of credit they may draw down to borrow any supported instrument on Superposition. Note that a customer may use the protocol to borrow an investment instrument (such as APT), or a cash-equivalent (such as USDC). Borrowing cash is typically employed for leverage or taking tax-free income via loans; borrowing an investment vehicle is typically for the purpose of selling that borrowed instrument and shorting it.

Loans are perpetual and have a floating rate. They do not have a fixed maturity date. Nor are their interest rates fixed. Under this paradigm, borrowers are never forced to repay their debts, so long as their portfolio still meets the minimum equity requirements set by the risk engine. Borrowers are incentivized to repay their loans only under two conditions:

• The interest rate on their debt is not worth the opportunity of keeping the position open

• They want to unlock collateral their collateral that is securing outstanding debt

Leverage

Superposition allows for leverage by means of collateralizing borrowed capital. By borrowing and then collateralizing, the user can increase their exposures beyond the value of their initial capital.

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