# Borrow

Imagine you possess crypto assets with strong long-term growth potential, yet require immediate liquidity for a new opportunity. Selling your valuable holdings isn't an ideal solution, right? This is precisely where **borrowing from Udon Finance** becomes a powerful tool.

When you borrow from Udon, you're essentially taking a loan from our decentralized **liquidity pools**, utilizing your supplied assets as **collateral**. Consider it a flexible, crypto-backed line of credit.

The advantages of borrowing are significant:

* **Access Liquidity Without Selling:** This is a cornerstone benefit. You can obtain the funds you need without liquidating your current holdings. This strategy allows you to **remain invested** and continue benefiting from potential appreciation of your collateral's value. **Unlock capital while staying exposed to market upside!**
* **Flexibility on Your Terms:** Borrow what you need, precisely when you need it. Udon's **smart contracts** automate the entire process, making it quick, efficient, and **permissionless**.

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## &#x20;Understanding Liquidation Risk: A Key Consideration

Just like any financial commitment, borrowing entails responsibilities, particularly within the dynamic crypto landscape. When you borrow from Udon, you enter the important realm of **liquidation risk**.

*   **What is Liquidation Risk?** Your loan must always be **overcollateralized**, meaning the market value of your collateral must consistently exceed the value of your borrowed assets. If the market value of your collateral declines significantly, or if your borrowed amount (including accrued interest) approaches your collateral's value too closely, your position could be **liquidated**. This process involves a portion of your collateral being automatically sold to repay your loan and maintain the protocol's overall health and stability.

    _Think of it as an automated safety buffer. If this buffer becomes too thin, the system automatically intervenes to protect the integrity of the protocol for all participants._

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## How Borrowing Interest Works

The interest rate you pay on borrowed assets is not static; it's **dynamic** and influenced by a few critical factors:

* **Utilization Rate:** This metric quantifies how much of a particular asset within a pool is currently being borrowed. A higher utilization rate for a specific asset will generally lead to a **higher interest rate**, which in turn incentivizes more users to supply that asset and ensures the pool remains adequately liquid. It's an elegant dance of supply and demand.
* **Protocol Parameters:** Udon's **smart contracts** autonomously adjust these rates based on real-time market data and pre-defined protocol rules. These rules are meticulously designed to maintain the equilibrium of the entire ecosystem, benefiting both borrowers and suppliers.

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## Your Mission: Stay Healthy!

To effectively manage and avoid liquidation, it is crucial to **actively monitor your collateralization level and your Health Factor**. (We'll delve deeper into this critical metric shortly.) Keeping your position **well-collateralized**, especially during periods of market volatility, is paramount for a seamless borrowing experience. Udon provides all the necessary tools within the DApp to help you constantly monitor your status and make informed decisions.

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