Borrowing USDXL is effectively minting new USDXL tokens through HypurrFi’s lending protocol. Users can borrow USDXL by supplying sufficient collateral at the protocol’s specified collateral ratio.

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How Borrowing Works

When you borrow USDXL, several processes occur behind the scenes:

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Minting USDXL

USDXL is created (“minted”) when users borrow against their supplied collateral. The process requires over-collateralization, meaning the value of supplied assets must exceed the value of USDXL being borrowed. This over-collateralization serves as a crucial stability mechanism, protecting against collateral price fluctuations during market volatility.

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Borrowing Process

  1. Supply Collateral
    • Deposit supported assets into HypurrFi
    • Receive interest-bearing tokens representing your deposit
    • Enable collateral usage for borrowing
  2. Borrow USDXL
    • Select amount to borrow (within collateral limits)
    • Maintain required health factor
    • Receive USDXL tokens in your wallet
  3. Monitor Position
    • Track your health factor
    • Watch collateral ratios
    • Manage interest accrual

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Example Scenario

Let’s walk through a typical borrowing scenario:
  1. User supplies 1 ETH as collateral to HypurrFi
  2. User receives 1 ibETH (interest-bearing ETH) in their wallet
  3. User borrows 1000 USDXL (assuming appropriate collateral ratio)
  4. Two tokens are generated:
    • 1000 USDXL tokens (sent to user’s wallet)
    • 1000 debtUSDXL tokens (representing the debt position)
Important: The actual debt amount will increase over time as interest accrues. For example, after some time, your 1000 USDXL debt might become 1000.5 USDXL due to accumulated interest.

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Risk Management

When borrowing USDXL, keep in mind:
  • Health Factor: Must remain above 1 to avoid liquidation
  • Collateral Value: Price fluctuations affect your health factor
  • Interest Rates: Variable interest accumulates on borrowed amounts
  • Liquidation: Positions can be liquidated if health factor drops below threshold

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Best Practices

  1. Maintain Safe Ratios
    • Borrow well below maximum capacity
    • Keep buffer for market volatility
  2. Monitor Regularly
    • Track your health factor
    • Watch market conditions
    • Adjust position as needed
  3. Plan Ahead
    • Have a repayment strategy
    • Keep emergency collateral available
    • Understand liquidation risks