Why can’t we use our collateral to repay our borrow

Question

Why can’t we use our collateral to repay our borrow

amounts? Even if the value of your collateral is greater than that of the borrowed mAsset you can’t use it to repay the loan, but have to acquire the corresponding amount of the mAsset with assets other than your collateral.

I’m just thinking about a scenario where I borrow $50k worth of mETH, putting up $100k as collateral, but then say I lose the borrowed $50k of mETH trading. Now I still have a $50k loan with $100k as collateral, but I can’t close the position because I can’t sell my collateral back to repay the mETH and I lost the other capital I borrowed with the loan.

Can someone help me better understand this? It seems like people’s collateral could get locked in a loan that can’t be repaid, even though the collateral is still of greater value.

#cryptocurrency #english #mirror.protocol

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02.04.2022

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la18 wolf39 Автор вопроса

Mayank Grover (Will never DM first or ask for funds)
You can't use collateral to close your position. Y...

Yeah but I’m just thinking about a scenario where say I take out a loan for $10 worth of mETH, using $20 worth of aUST as collateral. If I then lose the mETH that I took out with the loan I will have nothing to repay the loan and won’t be able to withdraw my collateral even if it’s worth more than the value of the loan. So I could have the $20 worth of collateral stuck on the $10 loan permanently since I can’t come up with other funds to repay the $10 worth of mETH.

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02.04.2022

Mayank Grover (Will never DM first or ask for funds)

la18 wolf39
Yeah but I’m just thinking about a scenario where ...

Correct, so here you have to manage the things accordingly.

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02.04.2022

Mayank Grover (Will never DM first or ask for funds) · Accepted Answer

Mayank Grover (Will never DM first or ask for funds)

You can't use collateral to close your position. You have to buyback same amount of mAsset to close your position. To borrow or short, you have to lock your collateral but you can withdraw collateral if you see it's a lot more collateral for your borrowed mAsset. So you can withdraw the amount of capital according to your position.

0

02.04.2022

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Why can’t we use our collateral to repay our borrow

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