Borrowing

MaiCoin

Modified on: Tue, 31 Jan, 2023 at 10:09 AM

What is Borrowing & M-Wallet?
- Borrowing, powered by the design of M-Wallet, enables users to borrow crypto from the exchange. Users should transfer holdings from the spot wallet (the wallet exists by default after sign-ups) to M-Wallet. Users will be granted a limit to which they can borrow.
How much can I borrow?
- The total amount allowed to borrow depends on your transfers from the spot wallet. The more you transfer from the spot wallet, the more you can borrow in M-Wallet. Hypothetically, you should be able to borrow $2 for every $1 transferred from the spot wallet to M-Wallet. Minimum borrow limits apply.
How is the interest calculated?
- MAX applies a simple interest rate on users’ debt. MAX does not compound interests into principals in the next period of interest calculations.
- Interests are charged hourly on the hour. On each hour, MAX applies the announced hourly interest rate to the principal at the moment. For instance, your principal is at 10,000 USDT at 8:00, and the applied hourly interest rate for USDT is 0.001%, then the interest accrued for that hour is 0.1 USDT.
- The first-hour interest is charged when users borrow.
When am I required to pay back the debt?
- Crypto borrowed has no maturity date at this moment. You are not obliged to pay back on any given date, assuming the A/D ratio remains at least or above 1.3. You can repay the debt entirely or partially anytime by pressing “Repay” to repay.
What crypto can I borrow?
- Please refer to the list of supported currencies on MAX app.
Which trading pairs are allowed for M-Wallet assets?
- Please refer to the list of supported currencies on MAX app.
Will I be forced to repay?
- MAX calculates the A/D ratio, which comprises assets and debt value (including principal and accrued interest). If the A/D ratio falls below 1.2, holdings are subject to liquidations to repay debt.
Do liquidations affect assets in spot wallets?
- No, positions liquidated are limited to of which in M-Wallet.
Can I transfer assets out of M-Wallet?
- Outbound transfers are allowed so long as the A/D ratio remains at least or above 1.5 after the transfer is made.
What is the A/D ratio?
- A in A/D stands for the crypto asset, which means the total value of all crypto held in M-Wallet; D stands for debt and includes principal and interest accrued of debt.
- A/D ratio comprises assets divided by debt value. The ratio represents the degree of solvency. The greater the ratio, the higher the incremental risk users can take on and vice versa. MAX calculates the ratio every minute and carries out necessary actions accordingly.
What are the critical A/D ratios?
- When borrowing, the A/D ratio should remain at least 1.5 after the borrowing is processed.
- When transferring assets out of M-Wallet, the A/D ratio should remain at least 1.5 after the transfer is processed.
- The A/D ratio contains 3 risk categories:
  - Low risk - when the A/D ratio >= 1.5
  - Medium risk - when the A/D ratio >= 1.3 and < 1.5.
  - High risk - when the A/D ratio >= 1.2 and < 1.3.
- Liquidation - when the A/D ratio =< 1.2.
- Please note: the A/D ratio is rounded up to 8 decimals.
How are assets and debt values calculated?
- To obtain the fair value of account holdings, MAX sources price indices from other exchanges; this helps minimize liquidations in case of unreasonable price deviations on MAX order book.
How are price indices calculated?
- MAX takes price data from various exchanges. Currently, our data sources include Bitfinex, Kraken, Binance, Coinbase, Huobi and KuCoin. MAX reserves the right to adjust methodologies of price indices and data sources at its sole discretion in the interests of market integrity.
What does the expected price index mean on the interface?
- As you navigate to the right of the A/D ratio gauge, you will see the corresponding expected price index at that A/D ratio.
- For instance, when you navigate to the A/D ratio being 1.2, you can see the expected price of crypto at which you are subject to liquidations. This feature aims to help you manage risks.
- When estimating price indices, MAX assumes identical direction and extent of price movements in BTC/USDT and ETH/USDT. Thus, the estimates should be considered references only, and they do not represent the actual liquidation prices.
What do the suggested repaid and transferred amounts mean on the interface?
- When you navigate to the left of the A/D ratio gauge, you will see the suggested repaid and transferred amount to obtain each A/D ratio.
- For instance, your current A/D ratio is 1.3. When you navigate to 1.5, you will see the suggested repaid and transferred amount to raise your A/D ratio from 1.3 to 1.5.
The following steps are taken sequentially until the A/D ratio returns to 1.5:
- Repay accrued interest with the crypto on balance, following the sequence of USDT, BTC, ETH, TWD.
- Repay principal with the crypto on balance, following the sequence of USDT, BTC, ETH, TWD.
- Liquidate crypto to repay outstanding debt, following the sequence of USDT, BTC, ETH, TWD.
  - In the interest of our users, MAX guarantees liquidation prices. All liquidations are traded following the price indices at the moment. MAX charges a liquidation fee, which varies by trading pair:
    - USDT market (pairs quoted in USDT): 0.5%
    - BTC market: 1%
Why is the A/D ratio slightly lower than 1.5 after liquidations?
- In the interest of our users and minimizing the impact of liquidations, MAX allows the A/D ratio to be slightly lower than 1.5 with liquidation fees taken into account, instead of liquidating more positions to push the A/D ratios to at least or greater than 1.5. Thus, the post-liquidation A/D ratios being less than 1.5 is considered usual.
How does Borrowing (M-Wallet) work (with examples)?
- BTC price index is at $50,000 USDT at 8am when Bob transfers 1 BTC from his spot wallet to M-Wallet and borrows 2 BTC.
- Bob sells 2.4 BTC at $50,000 USDT.
  - The A/D ratio is now at 1.5 (low risk, when the A/D ratio >= 1.5).
  - Assets = 150,000 USDT (proceeds from the sale of 2.4 BTC and the value of the remaining 0.6 BTC quoted in USDT).
  - Debt = 100,000 USDT (value of the 2 BTC borrowed, quoted in USDT).
- BTC surges to $60,000 USDT.
  - The A/D ratio is now 1.3 (medium risk, when the A/D ratio >= 1.3 and < 1.5).
  - Assets = 156,000 USDT (120,000 + 0.6 BTC * 60,000)
  - Debt = 120,000 USDT (2 BTC * 60,000)
- BTC bumped up to $62,500 USDT.
  - The A/D ratio is now 1.26 (high risk, when the A/D ratio >= 1.2 and < 1.3).
  - Assets = 157,500 USDT (120,000 + 0.6 BTC * 62,500).
  - Debt = 125,000 USDT (2 BTC * 62,500).
  - Since the A/D ratio is now less than 1.3, Bob will receive a margin call via SMS and Email and is required to increase assets or repay debt.
- Assuming Bob fails to increase assets or repay debt and BTC is now at $75,000 USDT.
  - The A/D ratio is 1.1. Liquidation is triggered.
  - Assets = 165,000 USDT (120,000 + 0.6 BTC * 75,000).
  - Debt = 150,000 USDT (2 BTC * 75,000).
- Liquidation
  - MAX attempts to repay debt with existing assets before liquidations if the A/D remains below 1.5 after the repayments before the sale of positions until the A/D returns to 1.5 or above.
  - According to Bob’s position, the system first repays his debt with 0.6 BTC. After the repayment, asset value is now at 120,000 USDT and the A/D at 1.142857143 with 1.4 BTC in debt. Liquidations are required for the A/D returns to 1.5 or above.
    - Assets = 120,000 USDT (120,000 + 0 BTC * 75,000).
    - Debt = 105,000 USDT (1.4 BTC * 75,000).
  - Hypothetically, if no liquidation fees are charged, the system will buy back 1 BTC at $75,000 USDTto repay outstanding debt concerning the desired post-liquidation A/D returning to 1.5.
    - Assets = 45,000 USDT (120,000 - 75,000).
    - Debt = 30,000 USDT (0.4 BTC * 75,000).
  - In reality, liquidation fees are applied. The fee of liquidations in BTC/USDT is 0.5%. When the system buys back 1 BTC at 75,000 USDT, 0.005 BTC is deducted as a liquidation fee and the remaining 0.995 BTC is used in debt repayment. The final A/D is 1.48148148.
    - Assets = 45,000 USDT (120,000 - 75,000).
    - Debt = 30,375 USDT (0.405 BTC * 75,000).
- How is MAX Token trading fee discount applied to M-Wallet trading?
  - M-Wallet trading is eligible for MAX Token trading fee discount as well. If sufficient MAX tokens are in the spot wallet, they are deducted as trading fees from your spot wallet directly.