How to Use Time-Based Loans to Improve the Health of Leveraged Trades

Teller is a decentralized finance (DeFi) platform that enables liquidity through time-based loans. Unlike traditional DeFi lending, which often involves margin calls and liquidation risks due to fluctuating asset values, Teller’s loans are purely time-based.

This means collateral is not at risk of liquidation for the duration of a loan The only responsibility is to repay or extend the loan within the agreed timeframe.

For DeFi users, especially those trading with leverage, Teller’s loans can be a game-changer in maintaining the health of open positions. Teller provides liquidity without the constant worry of market volatility.

Understanding Trades, Leverage, and Trade Health

In trading, especially with leverage, users borrow funds from the trade platform to increase their buying power. This can amplify potential gains, but it also increases risk.

The “health” of a trade refers to the ratio of collateral to borrowed funds. If the market moves against a position, the trade’s health can deteriorate, potentially leading to liquidation. Maintaining a strong health ratio is essential for keeping a position open in volatile markets.

Comparing Time-Based Loans to Traditional DeFi Loans

Traditional DeFi loans rely on oracles. These loans track the value of a collateral position in real-time. If the value of a collateral position drops below a certain threshold, the borrower could face a margin call or liquidation. Thus, the borrower is faced with a dilemma: add more collateral or risk losing the position.

This can be stressful, especially in volatile markets like cryptocurrency. Teller’s time-based loans eliminate the risk of liquidation due to price fluctuations. Since the loan is secured based on time rather than the collateral's current market value, the user doesn’t have to worry about sudden price drops affecting a position. This approach offers a predictable way to manage trade positions and improve their health, making Teller an ideal solution for those seeking to minimize risk in their leveraged positions.

How a Time-Based Loan Can Improve Trade Health

Improving the health of an open trade often involves adding more collateral or reducing the amount borrowed. Teller’s time-based loans provide the liquidity needed to do this effectively. By securing a loan with Teller, a user can add funds to a trade without worrying about margin calls or liquidation due to price drops. This approach allows a user to reinforce a position, giving the user more control over a trade.

Steps to Obtain a Teller Time-Based Loan and Improve Trade Health

Here’s how to use any supported asset as collateral and improve the health ratio in open positions:

Step 1: Connect a Compatible Wallet
Connect a cryptocurrency wallet to the Teller platform using supported wallets like MetaMask, Coinbase Wallet, or any other wallet that supports Web3 connections.

Step 2: Review Tokens with Available Loan Offers
View the tokens in the wallet that are eligible for loans. The Teller platform will display the available loan opportunities based on the assets held. If a token does not have an active loan listing, create a loan request to be filled by a lender by following the platform’s instructions.

Step 3: Examine Loan Offers
When reviewing available loan offers for eligible assets, consider these factors:

• Token Pair: Determine the specific asset needed to improve health ratio, such as ETH or USDC.
• Loan Duration: Select an appropriate time interval that fits borrowing needs.  Loans can be repaid at anytime or rolled over as needed, as long as interest is paid and liquidity is available for the offer.

Max Loan Amount: Determine the optimal loan size required to correct health ratio or assess the maximum amount you can borrow with available collateral.

Step 4: Select and Execute a Loan
Choose a preferred loan offer and initiate the loan process in a single transaction. The transaction will transfer the selected collateral (tokens) into an on-chain escrow smart contract, securing the loan. The loan capital is then transferred directly to the connected wallet.

Step 5: Improve Health Ratio of Open Positions
Deposit additional tokens into open positions to improve their health ratio. This reduces the risk of liquidation by increasing the collateral backing the loan.

Step 6: Exit Position and Repayment
At the end of the loan duration, exit any open position that utilizes the loaned assets. Navigate back to Teller to repay the loan along with any applicable fees to release the collateral from the escrow smart contract.

TLDR;

Teller’s time-based loans provide a significant advantage for users, especially those dealing with leveraged positions. By eliminating the risk of liquidation due to market fluctuations, Teller offers a more predictable and stress-free way to manage trades. The ability to improve the health ratio of open positions without the constant worry of price drops makes Teller a valuable tool in a user’s arsenal. This blog outlines trade health and the steps to obtain a Teller loan and use it to enhance the health of open positions.

Glossary

Collateral: Assets pledged by a borrower to secure a loan. If the borrower fails to repay the loan, the collateral may be forfeited to the lender.

DeFi (Decentralized Finance): A financial ecosystem built on blockchain technology that allows users to engage in financial activities without relying on traditional intermediaries like banks.

Health Ratio: In trading, the health ratio refers to the proportion of collateral to borrowed funds in a leveraged position. A strong health ratio is crucial to avoid liquidation during market volatility.

Leverage: The use of borrowed funds to increase the potential return of an investment. While leverage can amplify gains, it also increases risk.

Liquidation: The process of selling off collateral assets when the value of those assets falls below a certain threshold, usually triggered by a margin call in traditional DeFi loans.

Margin Call: A demand by a lender for the borrower to deposit additional funds or securities to cover potential losses due to the declining value of collateral in a leveraged position.

Time-Based Loan: A loan secured based on a predetermined duration rather than the fluctuating value of collateral. The borrower’s only responsibility is to repay or extend the loan within the agreed timeframe.