Borrower guide: how to borrow on Fraxlend
Fraxlend is Frax's lending market. The idea is simple: lock up one asset as collateral, borrow another against it, and pay interest until you repay. The details are where people get into trouble, so this guide walks through how a pair works, what loan-to-value means, and how to avoid the outcome nobody wants — liquidation.
Isolated pairs, not one big pool
Fraxlend is organized as isolated pairs. Each market is a single pair of ERC-20 assets: one is lent, the other is posted as collateral. Because each pair is walled off from the others, a problem in one risky market does not drain a market you are using. It also means each pair has its own interest rate, its own oracle and its own risk parameters, so two markets are never quite identical.
Lenders deposit the asset token and receive fTokens in return, which redeem for a growing amount of the underlying as interest accrues. Borrowers post collateral and receive the asset token. As long as a loan is open, interest accrues and capitalizes — meaning it is added to what you owe, so your debt grows over time even if you do nothing.
Loan-to-value: your margin of safety
Every pair has a maximum loan-to-value (LTV) ratio — the largest share of your collateral's value you are allowed to borrow. As a rough guide, pairs with volatile collateral often allow around 75%, while stablecoin-against-stablecoin pairs can go higher, toward 90%. These limits are set by governance per pair, so treat any specific percentage as a live figure to confirm in the market itself.
Borrowing right up to the maximum LTV is the single most common mistake. It leaves no room for the collateral to fall in price before you are at risk. The more buffer you keep between your actual LTV and the limit, the more a price drop you can survive.
What triggers a liquidation
Your position becomes unhealthy when the value of your debt rises too far against the value of your collateral. Two things push it there: your collateral falling in price, or your debt growing as interest capitalizes. The pair's oracle — which combines price feeds from several sources to resist manipulation — is what the market uses to decide the current value.
If your loan crosses the threshold, it can be liquidated: part or all of your collateral is sold to repay the debt, usually with a penalty. You keep whatever is left, but liquidation is an expensive way to exit. The whole game is to never reach it.
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Pick the right pair
Check the asset you want to borrow, the collateral required, the max LTV and the current interest rate. Each pair is its own market.
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Post collateral and borrow conservatively
Borrow well below the maximum LTV. A position at 50% of the limit tolerates a far larger price drop than one at 95%.
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Watch interest accrue
Interest capitalizes into your debt, so your LTV creeps up over time even with a flat collateral price. The rate itself floats with utilization.
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Manage the position
Add collateral or repay part of the debt to keep a healthy buffer. Do it before volatility, not during it.
The mistakes that cause most liquidations
- Borrowing at the maximum LTV with no buffer for a normal price swing.
- Forgetting that interest keeps growing the debt even while you sleep.
- Using volatile collateral and a volatile borrowed asset at the same time.
- Not having a plan for what you will do if the price moves 20% against you overnight.
The companion to this page is risks and liquidations, which covers the failure modes in more depth. If you are also lending rather than borrowing, the depositor guide is the other side of the same market.